Data from Japan's Cabinet Office Monday showed the economy, aided by higher exports and rising domestic demand, grew at an annual 4.6 percent during the October-December quarter, giving the country a gross domestic product of $5.27 trillion in 2009, against China's $4.9 trillion.
Japan has been in second place, after the United States, since 1968 but China is expected to soon replace Japan as the world's second-largest economy in GDP terms. The U.S. GDP exceeds $14 trillion.
The report said the Japanese economy is recovering from its worst post-war recession caused by the global financial crisis which hit exports hard crisis and the yen to appreciate.
"Everyone (in Japan) knows that China will soon overtake us; it's a country with 10 times the population as Japan and a growth rate of about 10 percent," Masamichi Adachi, senior economist for JP Morgan in Tokyo told CNN. "(Japan's economic growth) is just flat, sluggish, and has been that way for the last two decades."