Japan's economy contracted in the second quarter of 2007 as firms cut spending on new factories and equipment, adding to jitters over the global economic climate.
The setback to Japan's economic recovery, which comes just as the US economy shows signs of faltering, further reduced expectations of the Bank of Japan raising its super-low interest rates again any time soon.
Japan's GDP shrank by 0.3% in the three months to June from the previous quarter and by 1.2% on an annualised basis.
The figures were much worse than an initial estimate of positive quarter-on-quarter growth of 0.1% for an annualised rate of 0.5%.
It was the first contraction in three quarters for Japan, which has been slowly recovering after falling into the economic doldrums in the early 1990s.
Corporate capital spending, which had been the key growth driver of the world's second-largest economy in recent years, marked its second straight quarterly decline.
The economy is expected to return to positive growth in the third quarter of 2007 but the pace may be sluggish due to the weakness of the US economy.
