Capital expenditure was the biggest driver of growth in October-December, rising 2.4 percent. That compares with as 2.7 percent contraction in the previous quarter, a smaller decline than initially estimated. The median estimate was for capital expenditure to rise 1.8 percent.
Private consumption, which accounts for about 60 percent of GDP, was the second-biggest driver of growth. Consumption rose 0.6 percent in October-December, which was less than the median estimate for a 0.8 percent increase and followed a 0.2 decline in the previous quarter.
"The economy is in gradual recovery as growth is led by private demand," Japanese Economy Minister Toshimitsu Motegi said in a statement.
"China-bound exports of information-related materials have weakened as the Chinese economy slowed. We need to monitor uncertainty over global economic outlook including Chinese economy as well as fluctuations in financial markets."
External demand — or exports minus imports — shaved 0.3 percentage point off gross domestic product, less than the median estimate of minus 0.4 percent. A breakdown of the data showed a 2.7 percent jump in imports more than offset the increase in exports.
Despite the rise in exports, some economists remain cautious about the outlook for overseas demand.