Japan's recovery stalled in the April-June quarter, with the world's third-largest economy contracting at a 1.6pc annual pace due to feeble consumer and corporate demand and slowing exports.
The dismal data reported yesterday was expected, based on earlier reported figures, but it raises the likelihood the central bank may opt for fresh stimulus measures in coming months.
It also comes at an awkward time for Prime Minister Shinzo Abe, who has championed a strategy of heavy monetary stimulus to help push prices higher and drive a "virtuous cycle" of stronger consumer spending and corporate investment.
Abe has seen his popularity ratings slip following damaging legislative skirmishes over his proposals to expand the role of Japan's self-defence force and could use some positive news on the economic side.
But heavy rains in the spring and early summer are thought to have discouraged shoppers. Demand for cars fell following a tax hike for smaller vehicles. As China's economy has slowed, its demand for exports has lagged.
Economy minister Akira Amari acknowledged inadequate progress toward getting companies to use surging corporate profits to raise wages and domestic investment - a priority seen as vital to a sustainable recovery. "Improving private consumption is crucial," he said.
Amari shot down speculation that Japan was planning further stimulus to spur growth. "We have no such intention," he said. The government did revise upward its estimate for growth in the January-March quarter, to 4.5pc from 3.9pc. The contraction in April-June represented a 0.4pc quarterly decrease.
The Bank of Japan, whose monetary easing is pumping trillions of yen (hundreds of billions of euro) of cash into the economy through purchases of government bonds and other assets, has persisted in forecasting a rebound later in the year.
Lower oil prices have hindered progress toward achieving an inflation target of 2pc, and the contraction will likely raise questions over whether the Abenomics approach is working, said Fung Siu, an analyst at the Economist Intelligence Unit.
"The data will prompt calls for more policy action from the Bank of Japan," Siu said. (AP)