Japan's gross domestic product (GDP) contracted by an annualized 12.7 percent in the October-December quarter of 2008, the fastest pace in about 35 years as the global financial crisis took a heavy toll on the world's second largest economy, said a government report on Monday.

It was the sharpest decrease in the country's economy since the first quarter of 1974 when its GDP suffered a decline of 3.4 percent, or an annualized 13.1 percent, due to the fallout of the first oil crisis, said the Cabinet Office in a preliminary report, indicating that Japan's economy has been mired in deeper recession.

Consumer spending, which accounts for about 55 percent of Japan's GDP, saw a 0.4 percent quarter-on-quarter fall in real terms while corporate capital spending, a main driver of Japan's six-year economic recovery since 2002, dropped 5.3 percent.

Exports tumbled at the fastest-ever pace of 13.9 percent due to the sharp appreciation of the yen amid the global economic recession, and imports, on the other hand, expanded 2.9 percent.

On November 17, 2008, Economic and Fiscal Policy Minister Kaoru Yosano announced that Japan's economy sank into its first recession in seven years in the July-September quarter of 2008 as the global financial crisis took a heavy toll on the world's second largest economy and curbed demand for its exports.

Japan's GDP, or the total value of the nation's goods and services, shrank for a second consecutive quarter in the third quarter of 2008, down by an annualized 0.4 percent in real terms. Japan, along with the 15-nation Eurozone, slipped into recession, which is technically defined as economic contraction in two quarters in a row.

Analysts believe that dramatic declines in overseas demand for Japan's autos and electronics gadgets and the sharp appreciation of yen against the US dollar, which slash the profit, sales and spending projections, have continued to deal heavy blows to Japan's economy and drag it into further recession.