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Japan's economy has experienced a drop for the initial time in a year and a half, mainly caused by declining overseas shipments as a result of newly imposed American trade duties.

Group of Seven Growth Rankings

The Japanese economy has become the initial G7 nation to announce an output shrinkage in the previous three-month period.

With the United States still needing to publish its gross domestic product figures for Q3 2025, the current G7 growth rankings show:

• France: 0.5 percent expansion
• UK: 0.1 percent
• Canadian economy: 0.1 percent (preliminary figure)
• Germany: 0%
• Italy: 0%
• Japanese economy: -0.4%

Travel Stocks Decline during Political Rift with China

Alongside the economic contraction, Japan is facing an growing political dispute with China concerning Taiwan.

Stocks in Japanese tourism and retail firms have fallen noticeably after China urged its residents to refrain from traveling to Japan.

This action by Chinese authorities escalated a political dispute that was triggered by comments from Tokyo's recently appointed PM about the potential of sending forces in the event of a hypothetical Chinese attack on Taiwan.

The situation triggered a wave of selling across Japanese tourism-related shares.

• The Tokyo Disneyland operator shares fell by 5.7%
• The department store chain plummeted by 11.3%
• Japan Airlines fell by 3.75 percent

"The ongoing tension over Taiwan and Beijing's advisory advising against travel to Japan introduces short-term difficulties for retail and hospitality sectors.

"Chinese visitors account for roughly 25 percent of Japan's inbound traffic, making department stores, luxury retail, and tourism services particularly vulnerable."

Economic Contraction Breakdown

Japanese GDP fell by 0.4 percent in the third quarter, as industrial exports were impacted by tariffs levied by the US recently.

Overseas shipments were a key factor of the decline, falling by 1.2 percent compared with the previous quarter, and were 4.5% lower than a the same period last year.

Previously, the American government had proposed Japan with a additional 25% tariff on its products, which was later lowered to 15% when the two nations reached a trade deal.

Consumer spending also declined, by 0.3% quarter-on-quarter.

On an annualized basis, Japan's real gross domestic product shrank by 1.8% in the three months through September.

"The Japanese economic situation was solid in the first half of this year and today's GDP data showed that growth is paused for now.

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

The US administration has lately acknowledged the impact of tariffs on US consumers, lowering duties on food imports including beef, produce, beverages and bananas amid increasing concerns about increasing costs.

Business Agenda

• 8am GMT: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August