The seasonally adjusted figure was also much lower than expectations of a 0.2 per cent drop.
Despite the declining growth, the government is positive that a recovery is underway.
Economics Minister Akira Amari, at a news conference after the data was published, noted a shortage of labor available for public works projects to stimulate the economy, highlighting a major constraint policymakers face - not enough suitable workers to build growth.
Amari nodded when asked if he saw "no need" to craft an extra budget to stimulate demand right away, despite US Treasury Secretary Jack Lew proposing earlier that Japan should provide more fiscal support to ensure it returns to growth - led by domestic demand.
"While there are risks such as overseas developments, we expect the economy to head toward a moderate recovery thanks to the effect of various (stimulus) steps taken so far," the minister said in a statement.
Economists said the weak data will put more pressure on the government and central bank to continue to stimulate the economy.
Japanese companies continue to be wary of using their record profits to raise wages and invest in the economy - a major challenge for Prime Minister's Shinzo Abe's "Abenomics" policies.
Business spending fell 1.3 per cent, against forecasts of a 0.4 per cent decrease. It also marked the second quarter in a row of declines.
But, private consumption, which accounts for 60 per cent of the economy rose 0.5 per cent from the previous quarter. (SH)
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