Japan’s economy shrank at an annualised rate of 1.4 per cent in the fourth quarter of 2015 in a further blow to Prime Minister Shinzo Abe and his Abenomics stimulus.

Economists had forecast a fall of 1.2 per cent but the figure came in worse than expected because of a sharp decline in consumption.

The data suggest Japan’s economy is still plagued by the weakness of domestic demand as it enters a fourth year of record monetary stimulus, with wages not rising fast enough to persuade consumers to spend.

There is no sign of a downward spiral in the economy but with the yen rising to trade at Y113.8 to the dollar in recent weeks, the figures put pressure on the Bank of Japan for even more monetary stimulus to encourage a strong round of wage rises this spring. Investors appear to expect more stimulus: the stock market rallied sharply after heavy falls last week, with the Nikkei 225 closing 7.16 per cent higher for one of its biggest one-day gains on record.

Yoshihide Suga, Japan’s chief cabinet secretary, blamed an exceptionally warm winter for the weakness of consumption. “The economic fundamentals are good,” he said. “We expect a steady recovery in business conditions.”

But Harumi Taguchi, principal economist at IHS Global Insight in Tokyo, said spending on cars and other durables was sluggish as well. “The bottom line is weak wage growth,” she said, arguing that consumers were saving to prepare for an anticipated rise in consumption tax next year. Ms Taguchi forecast growth would turn positive in the next quarter as the weather effect faded but would stay modest for most of the year.

In a sign of how badly Abenomics has struggled, growth for the full year of 2015 was 0.4 per cent, following a year of zero growth in 2014. That is roughly in line with Japan’s long-run growth potential, suggesting little progress towards using up spare capacity in the economy, essential to driving inflation upwards.