Amidst expectations of a recovery after a decade of economic woes, Japan's economy has grown more slowly than earlier forecast raising question marks over the impact of higher interest rates on its recovery.

As against a growth forecast of 2 per cent the Asian economic giant's GDP grew by 0.8 per cent in the July to September period compared to the same period last year.

Signs of recovery earlier in the year had prompted The Bank of Japan to raise interest rates from almost zero to 0.25 per cent in July this year. A further increase that was being expected, is now unlikely to materialise.

According to the Japanese government the main reason for the disappointing economic figures was a drop in domestic demand, which had contracted by 0.2 per cent from the previous three-month period.

"The lower GDP was mainly caused by weak consumption. I don't have any concerns that the economy will fall into a downward trend," economy minister Hiroko Ota said, but ruled out any likelihood of inflation.

A report from the cabinet office showed that machinery orders, a measure of economic activity, rose less than expected in October. In its report on machinery orders, the cabinet office said that they rose by 2.8 per cent in October from the previous month, less than many analysts had forecast.