🔗 Share this article

The Japanese economic system has recorded a decline for the first time in a year and a half, primarily caused by falling exports because of recent US tariffs.

G7 Economic Rankings

The Japanese economy stands as the first G7 economy to announce an GDP decline in the most recent three-month period.

With the United States still needing to publish its GDP data for the third quarter, the current Group of Seven growth leaderboard indicate:

• The French economy: 0.5 percent expansion
• United Kingdom: 0.1 percent
• Canada: +0.1% (preliminary figure)
• Germany: 0%
• Italy: no growth
• Japanese economy: negative 0.4 percent

Travel Shares Decline amid Political Rift with Beijing

In addition to the GDP decline, Japan is experiencing an intensifying diplomatic tension with China concerning Taiwan.

Stocks in Japanese tourism and consumer businesses have fallen noticeably after China advised its nationals to refrain from visiting to Japan.

This move by Beijing heightened a diplomatic feud that was triggered by comments from Tokyo's new PM about the possibility of deploying troops in the case of a hypothetical Chinese attack on Taiwan.

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

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

"The China-Japan tension over Taiwan and China's travel warning discouraging visits to Japan brings short-term challenges for retail and hospitality sectors.

"Tourists from China represent roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services especially vulnerable."

GDP Contraction Breakdown

Japan's GDP fell by 0.4% in the July-September quarter, as industrial overseas shipments were hit by duties levied by the US 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 year ago.

Earlier this year, the American government had proposed Japan with a additional 25 percent tariff on its goods, which was later lowered to 15% when the two countries concluded a trade deal.

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

On an annualized basis, Japan's GDP shrank by 1.8% in the three months through September.

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

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

The US administration has recently recognized the impact of tariffs on Americans, reducing tariffs on imported food products including meat, produce, beverages and fruits amid growing concerns about rising costs.

Economic Agenda

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