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Japan's economy has experienced a drop for the first time in a year and a half, mainly driven by declining exports due to newly imposed US trade duties.

Group of Seven Growth Standings

The Japanese economy has become the first Group of Seven country to announce an economic contraction in the latest three-month period.

As the United States yet to release its GDP data for Q3 2025, the present G7 growth leaderboard display:

• France: +0.5% expansion
• UK: +0.1%
• Canada: 0.1 percent (provisional estimate)
• German economy: zero growth
• Italy: no growth
• Japan: -0.4%

Travel Stocks Slump during Diplomatic Rift with China

Alongside the economic contraction, Japan is facing an growing political conflict with China regarding Taiwan.

Stocks in Japanese tourism and consumer businesses have fallen sharply after China urged its nationals to refrain from traveling to Japan.

This move by Beijing intensified a political dispute that was triggered by statements from Japan's recently appointed PM about the possibility of deploying forces in the case of a potential Chinese attack on Taiwan.

The development triggered a wave of selling across Japan's tourism-related shares.

• Oriental Land stock dropped by 5.7 percent
• The department store chain plummeted by 11.3%
• Japan Airlines fell by 3.75%

"The ongoing tension over Taiwan and Beijing's advisory discouraging travel to Japan brings near-term challenges for retail and hospitality sectors.

"Chinese visitors account for roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and hospitality particularly at risk."

GDP Decline Breakdown

Japanese gross domestic product fell by 0.4 percent in the third quarter, as manufacturers' overseas shipments were impacted by tariffs levied by the US recently.

Overseas shipments were a major driver of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a year ago.

Previously, the American government had proposed Japan with a additional 25% tariff on its products, which was later reduced to 15 percent when the two nations concluded a trade agreement.

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

On an annual basis, Japan's real gross domestic product contracted by 1.8 percent in the quarter through September.

"The Japanese economic situation was strong in the first half of this year and the latest GDP data showed that momentum is halted for now.

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

The White House has recently acknowledged the effect of tariffs on US consumers, reducing duties on imported food products including beef, tomatoes, coffee and fruits amid increasing concerns about rising costs.

Business Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August