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Japan's economy has recorded a contraction for the initial time in a year and a half, mainly caused by falling overseas shipments as a result of newly imposed American tariffs.

Group of Seven Growth Standings

Japan stands as the first G7 economy to disclose an economic contraction in the previous three-month period.

As the US yet to release its GDP figures for Q3 2025, the current Group of Seven economic leaderboard show:

• The French economy: +0.5% expansion
• UK: 0.1 percent
• Canada: +0.1% (preliminary figure)
• German economy: 0%
• Italy: 0%
• Japanese economy: -0.4%

Tourism Shares Decline during Diplomatic Dispute with Beijing

Alongside the economic contraction, Japan is experiencing an escalating political tension with China concerning Taiwan.

Stocks in Japanese travel and consumer businesses have declined significantly after China advised its citizens to avoid traveling to Japan.

This decision by Chinese authorities escalated a diplomatic feud that was triggered by statements from Tokyo's recently appointed PM about the possibility of sending forces in the event of a potential Chinese attack on Taiwan.

The situation triggered a wave of selling across Japanese leisure shares.

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

"The China-Japan tension over Taiwan and China's advisory advising against visits to Japan creates near-term challenges for consumer-facing sectors.

"Chinese visitors account for roughly 25% of Japan's inbound traffic, making department stores, luxury retail, and tourism services especially at risk."

GDP Decline Breakdown

Japanese gross domestic product declined by 0.4% in the third quarter, as industrial overseas shipments were hit by duties imposed by the US this year.

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

Previously, the American government had threatened Japan with a additional 25 percent tariff on its goods, which was later reduced to 15 percent when the two countries concluded a trade agreement.

Consumer spending also fell, by 0.3 percent compared to the previous quarter.

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

"The Japanese economic situation was stable in the initial six months of this year and today's GDP data showed that momentum is paused for now.

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

The US administration has lately recognized the impact of tariffs on US consumers, reducing duties on food imports including meat, tomatoes, beverages and fruits amid increasing concerns about increasing costs.

Business Agenda

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