"There are three quarters now of negative growth, so Japan is really struggling in this recovery," said Paul Sheard, chief economist at Lehman Brothers Japan.
The data also show that two of the world's biggest economies are either in or close to recession after Germany said this week its economy shrank by 0.2 percent in the fourth quarter.
On an annualised basis, Japan's GDP shrank a real 0.5 percent in the fourth quarter, worse than a median market forecast of 0.5 percent growth, the government data showed on Wednesday.
The common definition of recession - two straight quarters of contraction - was only met because July-September figures were revised on Wednesday to show a 0.3 percent fall instead of an initial reading for 0.1 percent growth.
The economy contracted 0.2 percent in April-June.
The yen fell was at around 105.15 to the dollar at 0930 GMT compared with around 104.45 before the data.
The Nikkei share price average ended 0.38 percent lower at 11,601.68, but briefly touched its highest intraday level in more than seven months, taking a cue from healthy capital spending figures in the GDP report.
Economists expect GDP for January-March to rebound as consumption picks up with better income and job conditions. They also cited a recent boost in machinery orders as a positive sign of future corporate investment.
"The (GDP) results came in at the lower end of expectations, but we shouldn't be too pessimistic about the current state and the outlook for the economy," said Naoki Iizuka, senior economist at Dai-Ichi Life Research Institute.
Prime Minister Junichiro Koizumi maintained the government's view that the recovery remained intact in the bigger scheme of things, a view shared by Economics Minister Heizo Takenaka.