Japan's economy shrank for a second consecutive quarter in the July-September period as the global financial crisis took a heavy toll on the world's second largest economy.

Japan's gross domestic product (GDP), or the total value of the nation's goods and services, dropped an annualized 0.4 percent in real terms, compared with an annualized 2.1 percent decrease in nominal terms, the Cabinet Office said in a preliminary report.

Consumer spending, which accounts for about 55 percent of Japan's GDP, saw a 0.3 percent rise in real terms from the previous quarter, while Corporate capital spending, a main driver of Japan's six-year economic recovery since 2002, slipped 1.7 percent, said the report.

The GDP deflator, a key inflation gauge, declined 1.6 percent from a year ago.