such as Nissan Motor Co.
Private consumption - which accounts for roughly 60 percent of the economy - fell 0.5 percent in the third quarter against a median forecast of a 0.6 percent drop.
Capital expenditure tumbled 3.2 percent, the fastest pace of decline since a 5.5 percent drop in April-June 2009, as companies turned more pessimistic about earnings from domestic and overseas markets.
In Japan's ailing electronics sector, Sony plans to reduce capital spending by 29 percent in the year to March 2013 and Panasonic plans a 27 percent cut, after incurring huge losses in their TV manufacturing businesses.
The companies are struggling to compete with more nimble rivals, such as South Korea's Samsung Electronics and America's Apple Inc, and with a steady rise in the yen, which makes exports from Japan more expensive.
Analysts said Japanese companies face too many uncertainties to plan future spending with confidence and that is unlikely to change in the current quarter.
Resolving the protracted euro zone debt crisis is no nearer, U.S. tax increases and government spending cuts in early 2013 could tip America into recession unless Congress acts, and adding domestic uncertainty Japan's Prime Minister Yoshihiko Noda has promised to call a national election soon to break a political deadlock.
Masamichi Adachi, senior economist at JPMorgan Securities, said business investment would fall again in the fourth quarter as the global economy recovers only gradually.
If some of these uncertainties are removed, it is possible for things to improve, Adachi said.
He forecast capital expenditure will fall 0.5 percent in October-December and then rise 0.7 percent in January-March.
Japan's economy outperformed most of its Group of Seven peers in the first half of this year on robust private consumption and spending for reconstruction following last year's earthquake.
But growth has stalled since then. Indeed, second-quarter growth was revised down in the latest figures by half to just 0.1 percent. The last quarterly economic contraction was in the Oct-Dec period of 2011, when GDP fell 0.3 percent.
With the economic affect of rebuilding from last year's earthquake and tsunami fading, the government acknowledged