Domestic consumption accounts for roughly 60 percent of Japan's GDP and fell by 0.2 percent in the July-to-September period, the Cabinet Office reported Wednesday.
While it signals a continuation of the country's positive growth streak - the longest since an eight-quarter run ending in early 2001 - the latest result is lower than the revised 0.6 per cent expansion achieved in April to June.
Strong exports and corporate investment helped offset relatively weak household demand, which accounts for almost two-thirds of business activity but remains fragile thanks to sluggish growth in wages. The largest contributor was net exports, which boosted quarter-over-quarter growth by 0.5 percentage points, while the largest drag was from household consumption, which deducted 0.3 percentage points.
While the revival in exports thanks to recovering demand in China, the US and other major markets has breathed fresh life into the economy, Japan's long-term outlook remains uncertain. Wage rises have been tepid, though, and the government has struggled to overcome years of deflation.
Economists expect growth to slow in 2018-2019, partly because of limits to factory, logistics and hiring capacity and partly because of a sales tax hike promised for October 2019.