The nozzle in the picture above is retracted normally, and it comes out when the button is pushed to shower. It retracts again after the shower. Out of curiosity people who use it for the first time often push the button without sitting on the stool, and surprised by the warm water shooting at their face.
This type of toilet became the norm in Japan since the 80's, and currently most of the toilets you find in Japan are this type (even in public facilities). Japanese wiki describes the toilet seat's history in details; A history lacking in the English wiki. It is interesting to know that washing toilets were originally invented in the United States for hospitals and nursing home use. Toto, the maker of Washlet, was importing them in 60s. In the late 60s Toto started the production in Japan, but they were still expensive, and some people were burned (ouch!) due to the lack of temperature control. Since then the company made many improvements, and started to sell their toilet seat to the general consumer market in the early 80s. By 2000 most of the toilets in Japan became this type of toilet seat.
Japanese engineering and prevailing obsession in personal hygiene brought success to this uniquely Japanese product.