TOKYO, Feb 14 (Reuters) - Japan's economy shrank 0.1 percent in October-December from the previous quarter, falling for a third straight quarter, government data showed on Thursday, in a sign the nation is struggling to escape from a mild recession.

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KEY POINTS:

-- Gross domestic product (GDP) fell 0.1 percent in October-December from the previous quarter, compared with a median forecast of 0.1 percent expansion, according to a Reuters poll.

-- On an annualised basis, the economy contracted 0.4 percent, compared with the 0.5 percent annualised increase expected by economists, Cabinet Office data showed on Thursday.

-- Private consumption rose 0.4 percent from the previous quarter versus the median forecast for a 0.5 percent increase.

-- Capital expenditure fell 2.6 percent, compared with the median estimate for a 1.8 percent decline.

COMMENTARY:

YUICHI KODAMA, CHIEF ECONOMIST, MEIJI YASUDA LIFE INSURANCE, TOKYO

'The headline figure was slightly lower than expected, with a small contraction as exports declined, affected by weak overseas economies. A decline in business sentiment also weighed on capital investment.

'But I would say the economy hit bottom in October-December, and there is a strong chance that it will grow in January-March.

'China's economy is picking up and the U.S. is also on solid footing. Yen weakness has proceeded under 'Abenomics'.

'Corproate sentiment has improved, which will lead to an increase in capital expenditure.

'The economy in the next fiscal year will continue with solid growth, helped by the effects of the supplementary budget, a rush to make purchases before an increase in the sales tax next year, and continued post-quake rebuilding demand.

'Japan remains in deflation and the BOJ will have to ease further to achieve its 2 percent inflation goal. It may not act today but the central bank is likely to take an even easier stance on monetary policy under a new governor.'

SHUJI TONOUCHI, SENIOR FIXED INCOME STRATEGIST, MITSUBISHI UFJ MORGAN STANLEY SECURITIES, TOKYO

'The biggest reason for the decline in GDP is external demand was weak and domestic demand did not recover as quickly as we thought.

'Capital expenditure did not do well. There is also a decline in inventories, which is a negative factor but likely only temporary.

'The economy has contracted for three straight quarters, but the third quarter was the worst and fourth quarter data show the pace of decline is slowing.

'Data show that overseas economies are recovering, so we expect Japan to return to growth in the first quarter. A weak yen will also help exporters.

'The economy is still on the recovery track, and there is a stimulus package that will help from the spring. The Bank of Japan is also likely to continue monetary easing.'

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LINK:

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http://www.esri.cao.go.jp/en/sna/sokuhou/sokuhou_top.html

BACKGROUND:

-- The Bank of Japan is expected to keep monetary policy steady and may revise up its assessment of the economy on Thursday, as the yen's recent declines and a pick-up in global demand offer some relief to the export-reliant economy.

-- Japan is expected to stress at a Group of 20 meeting this week that its push for aggressive monetary easing is intended to beat deflation and not devaluing the yen.

-- A $117 billion stimulus package compiled by the government last month is likely to pass parliament in coming weeks in the government's biggest stimulus push since the financial crisis to kickstart the economy.

(Reporting by Kaori Kaneko, Stanley White and Leika Kihara; Editing by Edmund Klamann) Keywords: JAPAN ECONOMY/GDP

(kaori.kaneko@thomsonreuters.com)(Reuters Messaging:)(kaori.kaneko.thomsonreuters.com@reuters.net)(+81-3-6 441-1983)

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