"Globally, IT-related items have been in an adjustment phase, which weighed down Japan's exports and factory output", said SMBC Nikko Securities economist Yoshimasa Maruyama.
The contraction, which was driven by a decline in investment and consumption and weaker exports, comes as Japan Inc worries about the possible effect of U.S. President Donald Trump's protectionist policies on global trade. "The global economy is performing well and a yen is trading beyond 110 yen against the dollar, so once exports start to grow again, the economy will return to a moderate growth path", he said.
Officials at the Cabinet Office attribute this to sluggish personal spending.
A slowdown could also call the Bank of Japan's rosy economic outlook into question, especially after the central bank last month ditched a firm timeframe for meeting its elusive 2 percent inflation goal after more than five years of monetary stimulus.
Japan's economy shrank at an annualised rate of 0.6 per cent in January-March, contracting for the first time in nine quarters, as private consumption and capital expenditure slowed, government data showed on Wednesday.
Exports rose 0.6 percent.
The quarter was hit by bad weather that drove up fresh vegetable prices and dampened consumer spending.
Export demand added 0.1% to first quarter GDP but the rate of growth is slowing.