In the October-December quarter, the world's third largest economy's gross domestic product contracted 0.1 percent from the previous quarter, or at an annual rate of 0.4 percent. The government blamed the numbers both on weak exports and business investments.
The numbers fell far short of the average market forecast of 0.6 percent growth made in a survey by Kyodo News.
"Although the Japanese economy will remain weak for the time being, it is expected to gradually pick up through the Bank of Japan's monetary easing and policy effects of emergency economic measures," Economic and Fiscal Policy Minister Akira Amari said in a statement.
The new government of Prime Minister Shinzo Abe has as its top priority bringing Japan out of its chronic deflation and kick starting the economy, which has been hit by declining exports and a weak domestic demand.
The new government's efforts have included urging the central bank to undertake aggressive monetary easing and doubling inflation target to 2 percent.
The stimulus measures put in place by the Abe government have helped check the yen's appreciation, which should help boost exports. The country suffered a trade deficit of $78 billion in 2012, up 2.7 percent from 2011 after decades of surpluses.
Separately, the Bank of Japan left its monetary policy unchanged Thursday as it assesses the impact of its new inflation target.
The central bank voted to maintain the key short-term interest rate at zero to 0.1 percent and keep its plan to expand the size of its asset purchase program.
The bank upgraded its assessment of the economy, saying it "appears to have stopped weakening."