The economy shrank 0.1% compared with the previous three months. Most analysts had forecast growth of 0.1%.
That is equivalent to an annualised dip of 0.4% in gross domestic product.
Japan’s growth has been hurt by a drop in exports to key markets as well as subdued domestic consumption.
“The biggest reason for the decline in gross domestic product (GDP) is external demand was weak and domestic demand did not recover as quickly as we thought,” said Shuji Tonouchi of Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
Japan has been fighting deflation, or falling prices, for best part of the past decade.
That has hurt domestic demand as consumers tend to put off purchases in the hope of getting a cheaper and better deal later on.
Many analysts have said that stoking inflation is key to spurring Japan’s domestic consumption.
Japan’s new government led by Shinzo Abe has said that reviving the country’s economy is its top priority.
Last month, it approved a fresh 10.3 trillion yen ($116bn; £72bn) stimulus package in an attempt to spur a revival in the economy.
The package, which includes infrastructure spending, as well as incentives for businesses to boost investment, is estimated to boost Japan’s economy by 2% and create 600,000 jobs.
Analysts said these moves were likely to help spur growth in the Japanese economy in the current quarter.
“The economy has contracted for three straight quarters, but the third quarter was the worst and fourth quarter data show the pace of decline is slowing,” said Mr Tonouchi of Mitsubishi UFJ Morgan Stanley Securities
Analysts said the timing of the drop in yen’s value has been great for the exporters.
“We are nearing the end of the financial year, a time when leading exporters will be looking at closing their books and transferring their overseas earnings back to Japan,” Martin Schulz of Fujitsu Research Institute told the BBC.