🔗 Share this article

The Japanese economic system has experienced a contraction for the initial time in six quarters, primarily driven by declining exports due to newly imposed American tariffs.

G7 Economic Rankings

Japan has become the first G7 economy to disclose an output shrinkage in the most recent three-month period.

As the US still needing to release its gross domestic product figures for Q3 2025, the present G7 economic rankings show:

• The French economy: 0.5 percent expansion
• United Kingdom: +0.1%
• Canadian economy: +0.1% (provisional estimate)
• German economy: zero growth
• Italian economy: no growth
• Japan: -0.4%

Travel Stocks Decline during Diplomatic Dispute with China

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

Shares in Japan's tourism and consumer businesses have fallen significantly after China urged its nationals to avoid visiting to Japan.

This action by Beijing heightened a political dispute that was initiated by comments from Japan's new PM about the possibility of sending forces in the case of a potential Chinese invasion on Taiwan.

The development triggered a surge of sell-offs across Japan's leisure stocks.

• The Tokyo Disneyland operator stock fell by 5.7%
• Isetan Mitsukoshi plummeted by 11.3 percent
• The national carrier fell by 3.75%

"The China-Japan dispute over Taiwan and Beijing's travel warning discouraging visits to Japan introduces near-term difficulties for retail and hospitality sectors.

"Chinese visitors account for roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and hospitality especially vulnerable."

Economic Contraction Breakdown

Japanese gross domestic product fell by 0.4% in the July-September quarter, as manufacturers' exports were affected by duties levied by the United States this year.

Exports were a key driver of the decline, falling by 1.2 percent compared with the April-June quarter, and were 4.5% lower than a the same period last year.

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

Consumer spending also declined, by 0.3% compared to the previous quarter.

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

"The Japanese economic situation was strong in the first half of this year and today's GDP figures showed that momentum is halted temporarily.

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

The White House has recently recognized the impact of tariffs on US consumers, lowering duties on food imports including meat, tomatoes, beverages and bananas amid increasing concerns about increasing costs.

Economic Agenda

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