🔗 Share this article

The Japanese economic system has shown a contraction for the first time in six quarters, mainly driven by weakening overseas shipments as a result of newly imposed US tariffs.

Group of Seven Growth Leaderboard

The Japanese economy stands as the initial G7 country to report an GDP decline in the most recent quarter.

With the United States yet to release its GDP data for the third quarter, the present Group of Seven growth rankings display:

• The French economy: +0.5% quarterly growth
• UK: 0.1 percent
• Canada: +0.1% (provisional estimate)
• Germany: 0%
• Italian economy: 0%
• Japan: -0.4%

Tourism Shares Slump during Diplomatic Dispute with China

Alongside the economic contraction, Japan is dealing with an intensifying political dispute with China concerning Taiwan.

Shares in Japan's travel and consumer companies have fallen sharply after China urged its citizens to refrain from visiting to Japan.

This action by Beijing escalated a political dispute that was sparked by comments from Tokyo's new PM about the possibility of sending troops in the case of a hypothetical Chinese attack on Taiwan.

The development triggered a surge of sell-offs across Japanese leisure stocks.

• Oriental Land shares dropped by 5.7 percent
• The department store chain tumbled by 11.3 percent
• The national carrier fell by 3.75 percent

"The ongoing dispute over Taiwan and China's advisory discouraging travel to Japan introduces short-term difficulties for retail and hospitality sectors.

"Chinese visitors represent roughly 25% of Japan's international visitors, making department stores, high-end shopping, and tourism services particularly vulnerable."

GDP Contraction Breakdown

Japan's GDP fell by 0.4 percent in the July-September quarter, as manufacturers' exports were hit by duties levied by the US this year.

Overseas shipments were a key factor of the contraction, dropping by 1.2 percent compared with the April-June quarter, and were 4.5% lower than a the same period last year.

Previously, the US administration had proposed Japan with a new 25% tariff on its goods, which was later lowered to 15% when the two nations concluded a trade agreement.

Private demand also fell, by 0.3 percent compared to the previous quarter.

On an annualized basis, Japan's GDP contracted by 1.8% in the three months through September.

"The Japanese economic situation was solid in the initial six months of this year and today's GDP data showed that growth is halted temporarily.

I expect Japan's economy to be back on a gradual growth trend going forward."

The White House has lately acknowledged the effect of tariffs on Americans, reducing tariffs on imported food products including meat, tomatoes, coffee and fruits amid growing concerns about increasing costs.

Economic Calendar

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August