Japan's economy contracted less than initially estimated in the final quarter of 2015 but private consumption remained weak, underscoring the challenges facing premier Shinzo Abe in restoring growth amid intensifying overseas headwinds.
Analysts expect growth to have rebounded only modestly in the current quarter as China's slowdown clouds the outlook for global demand, keeping the Bank of Japan (BOJ) under pressure to expand monetary stimulus, although the returns available from that measure appear to be diminishing.
Sluggish growth could also heighten market speculation that Abe may delay a second consumption tax hike to 10 percent from 8 percent scheduled in April next year, some analysts say.
The world's third-largest economy shrank an annualized 1.1 percent in October-December, less than a preliminary estimate of a 1.4 percent contraction, Cabinet Office data showed on Tuesday. That compared with a median market forecast for a revision to a 1.5 percent contraction.
"Economic indicators in January are weak. The economy likely won't rebound significantly in January-March," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
"The government may adopt some form of stimulus steps and may delay the sales tax hike if growth is weak in January-March and prospects emerge that it will stay stagnant in April-June."
Growth in capital expenditure was revised up to a 1.5 percent increase from a preliminary 1.4 percent rise, the revised gross domestic product (GDP) data showed.
Private consumption fell 0.9 percent, slightly more than a preliminary 0.8 percent decline. Taken together, domestic demand shaved 0.4 percentage point off growth, against a preliminary negative contribution of 0.5 point.
Economy Minister Nobuteru Ishihara said the data showed some weakness in consumption, but there was no change to the government's view that Japan's economic fundamentals remained in good shape.
Also on Tuesday, the Ministry of Finance posted data that showed Japan's current account surplus stood at 520.8 billion yen ($4.59 billion) in January, benefiting from a narrowing trade deficit.
The surplus was smaller than economists' median forecast for a surplus of 719.0 billion yen in a Reuters poll. It marked the 19th straight month in surplus.
Japan has been hurt by China's slowdown, which has hit exports, as well as by market turmoil that prompted investors to flee to safe havens such as the yen, which pushed up the local currency.
The BOJ stunned markets in January by deploying negative interest rates to prevent global market volatility from hurting already frail business sentiment.
But the policy has failed to boost stock prices or arrest an unwelcome yen rise, drawing criticism from lawmakers that it would have little positive effect on the economy.
BOJ Governor Haruhiko Kuroda said on Monday the central bank will scrutinize the effects of negative interest rates on the economy for the time being, suggesting that no immediate expansion of stimulus was forthcoming.
The revision came as the Japanese government said it would hold a meeting on March 16-17 to discuss the global economy and markets. Prime Minister Shinzo Abe will attend the meeting, with Kuroda and several cabinet ministers.
Reuters reported that Columbia University Professor Joseph Stiglitz would be invited as a speaker to the gatherings, which were organized by Abe in preparation for Group of Seven meetings later this year that Japan will chair.
- CNBC contributed to this report.