The results exceed analyst expectations for a 0.2 percent contraction, as imports declined faster than exports.
Nevertheless, the better-than-expected figure pushed up Tokyo stocks, with the benchmark Nikkei 225 rising 0.24 percent, or 51.64 points, to 21,301.73, while the broader TOPIX edged up 0.04 percent, or 0.67 points, to 1,554.92.
Japan's economy grew at an annualized rate of 2.1% in the first quarter, accelerating slightly from the previous quarter's growth, backed by net exports growth, according to Reuters.
Yet the outlook for the economy still depends largely on unpredictable external factors, primarily China's economic slowdown and trade war with the us, as well as the threat of auto tariffs being held over Japan's own trade talks with the U.S.
Despite the good news, it's still concerning that the most important components of the country's GDP were negative, especially the domestic spending. Economists expect private consumption - which fell 0.1% in the first quarter - to pick up ahead of the tax increase.
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"The economy has already peaked out, so we are likely to have a mild recession", he said. Meanwhile, imports contracted by 4.6 percent - the most dramatic plunge in a decade. "No one would object to delaying the sales tax hike".
Toshimitsu Motegi, state minister for economic and fiscal policy, stressed in a press conference on Monday that "the upward trend in domestic demand remains unshaken", apparently trying to brush aside persistent anxieties over the planned consumption tax increase in October.
The on-going deterioration of the domestic and global economic environment calls for a delay in the tax hike, some policymakers argue.
Exports were down 2.4 percent because of weaker demand for electronic parts on the back of an economic slowdown in China.
Private consumption slid 0.1% and capital expenditure dropped 0.3%, casting doubt on policymakers' view that solid domestic demand will offset the pain from slowing exports. "This, combined with weakening capital expenditure, means there is a risk of a recession", said a senior economist at the Mizuho Research Institute.