TOKYO—Japan’s economy continued to shrink in the fourth quarter, proving the country is still battling a recession.

The country’s gross domestic product declined 0.4 percent on an annualized basis for the October to December period. This is the third straight quarter of negative growth for Japan, based on the most recent data.

Although consumer spending improved, rising 0.4 percent from the previous quarter, it could not offset another steep drop in exports. Exports, a key driver of Japan’s economy, plunged 3.7 percent in the fourth quarter. That compares to a 5.1 percent drop registered in the third quarter.

Japan’s trade with China, its largest trading partner, has taken a hit recently as the two countries have engaged in a territorial dispute and experienced political tensions. China’s economy has also showed signs of a slowdown.

Last month, Japan’s Ministry of Finance said that exports to China plunged 15.8 percent in December. Japan’s exports to China dropped 14.5 percent in November and 11.6 percent in October.


Japan broke out of a “negative spiral” in the fourth quarter and is entering a recovery phase, according to Tomo Kinoshita, Nomura’s chief economist for Japan.

“With the yen weakening and share prices rallying on the back of expectations for [Japan prime minister Shinzo Abe’s] economic policies, both corporate and consumer sentiment improved markedly in January,” Kinoshita wrote in a research note. “In our view, the Japanese economy is likely to stay strong between 2013 Q2 and 2014 Q1, prior to the planned hike in consumption tax.”