Investors, who had been by a consensus of economists to expect a growth rate near 2.8%, were stunned and initially sold stocks in force. The benchmark Nikkei 225 index sold off more than 1.5% in heavy trading to 14,313 before rebounding to a slightly positive reading of 14,317.
Trading for stocks and bonds are closed Monday in the U.S. for President's Day, a federal holiday. On Friday, stocks closed higher, capping the best weekly gains of the year. The Dow Jones industrial average rose 126.80 points, or 0.8%, to 16,154.39 and the Standard & Poor's 500 index rose 8.80 points, or 0.5%, to 1,838.63. Both indexes rose 2.3% for the week. The Nasdaq composite index rose for the seventh straight session, gaining 3.35 points, or 0.1% to 4,244.03. The tech-laden index jumped 2.9% for the week.
On Monday, in Tokyo, the government said that Japan's economy, adjusted for inflation, added just 0.3% growth for the last three months of the year, the government said.
MORE: Stocks close with best weekly gains of the year
Despite the disappointment in the growth rate, it is the fourth straight quarter of expansion since the economy emerged from recession in late 2012. But the disappointing growth is expected to put more pressure on Japan's central bank to ratchet up an already massive monetary stimulus ahead of a sales tax increase that takes effect April 1.
lackluster data will raise pressure for Japan's central bank to step up already massive monetary stimulus ahead of a sales tax hike on April 1.
Economists expect the impact of the tax hike will contract the economy in the second quarter as consumers rein in their spending to offset the higher taxes.
Contributing: USA TODAY's Beth Belton, The Associated Press