🔗 Share this article

The Japanese economic system has shown a contraction for the first time in a year and a half, largely caused by declining exports due to recent American tariffs.

G7 Growth Standings

The Japanese economy has become the first G7 country to announce an GDP decline in the previous quarter.

With the US still needing to release its gross domestic product figures for Q3 2025, the current G7 growth leaderboard indicate:

• The French economy: +0.5% expansion
• UK: 0.1 percent
• Canadian economy: 0.1 percent (provisional estimate)
• Germany: 0%
• Italy: 0%
• Japan: -0.4%

Travel Stocks Decline during Political Dispute with Beijing

Alongside the GDP decline, Japan is dealing with an intensifying diplomatic tension with China concerning Taiwan.

Stocks in Japanese travel and consumer firms have dropped noticeably after China advised its nationals to avoid visiting to Japan.

This decision by Beijing escalated a diplomatic feud that was triggered by comments from Tokyo's recently appointed prime minister about the potential of sending forces in the case of a potential Chinese invasion on Taiwan.

The situation caused a wave of selling across Japanese tourism-related stocks.

• Oriental Land shares dropped by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3 percent
• Japan Airlines declined by 3.75 percent

"The China-Japan tension over Taiwan and China's advisory advising against visits to Japan brings short-term challenges for retail and hospitality sectors.

"Tourists from China represent roughly 25% of Japan's international visitors, making retail outlets, luxury retail, and hospitality particularly at risk."

GDP Decline Details

Japanese GDP dropped by 0.4 percent in the third quarter, as industrial exports were hit by duties imposed by the United States recently.

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

Earlier this year, the US administration had threatened Japan with a new 25 percent tariff on its products, which was later reduced to 15 percent when the two countries reached a trade agreement.

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

On an annualized basis, Japan's GDP contracted by 1.8 percent in the quarter through September.

"The Japanese economic situation was solid in the first half of this year and the latest GDP data showed that growth is paused temporarily.

I anticipate Japan's economy to be returning on a gradual recovery trend going forward."

The US administration has lately recognized the impact of tariffs on US consumers, lowering duties on food imports including beef, tomatoes, beverages and fruits amid growing concerns about rising costs.

Business Agenda

• 8am GMT: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August