It also showed a rebound from a 2.4 percent contraction in the previous quarter for the world's third-largest economy as storms and earthquakes crimped travel and spending. On a quarterly basis, Japan's economy grew 0.5 percent in October-December.
Economists say slowing growth in China and weakening demand elsewhere are raising risks for a downturn in the coming months. The latest data show lower government spending also is hurting growth. But domestic demand was lifted by a 2.7 percent annual increase in corporate investments. Revised inventory data also raised growth, said Stefan Angrick of Oxford Economics.
Growth in incomes, a key factor behind consumer demand, remained flat. Angrick said the economy was likely to grow at a slower pace in 2019, partly due to belt-tightening by low-income households. Japan's economy has maintained a modest pace of expansion throughout most of Prime Minister Shinzo Abe's more than five years in office, failing to attain the levels of growth expected from injections of tens of billions of yen (billions of dollars) a year from the central bank.
If growth stalls in coming months, Abe might feel obliged to delay, for a third time, a planned hike in the sales tax that is needed to repair national finances. The sales tax is due to rise to 10 percent from the current 8 percent in October.