Japan's economy contracts less than expected 1.1% in fourth quarter

Continued downturn in the economy poses harder challenge to Prime Minister Shinzo Abe's Abenomics approach

Japan's gross domestic product contracted 1.1 percent in the last three months of 2015, official figures showed on Tuesday.

The rate of contraction in the world's third-largest economy was less than the analysts' estimates of an annualized 1.5 percent shrinking.

This was less also than a preliminary estimate of a 1.4 percent contraction by the Cabinet Office.

However, the continued downturn in the economy will pose a harder challenge to Prime Minister Shinzo Abe, who has been trying to revive the flagging economy with his 'Abenomics' approach.

The government focuses on boosting spending and keeping deflationary sentiments at bay to revive the economy, which has been struggling with deflation for nearly 20 rears.

In a surprise move in February, the Bank of Japan introduced a negative interest rate of -0.1% on excess bank deposits with the central bank, dealing shock to financial markets and Japanese domestic savers.

However, analysts expect the weak economic backdrop to put more pressure on the BoJ to further expand monetary stimulus.

"We expect policymakers to lower the interest rate on excess reserves from -0.1% to -0.3% and to step up the pace of asset purchases at next week's meeting," Marcel Thieliant, Japan economist at Capital Economics, said.