Japan's Economy Contracts while Overseas Sales Are Hit by American Trade Duties

The Japanese economic system has recorded a decline for the initial time in six quarters, mainly driven by falling exports due to newly imposed US tariffs.

Group of Seven Growth Leaderboard

Japan has become the first Group of Seven country to disclose an economic contraction in the most recent quarter.

As the US yet to publish its gross domestic product figures for Q3 2025, the present Group of Seven growth leaderboard indicate:

• The French economy: +0.5% expansion
• United Kingdom: 0.1 percent
• Canadian economy: 0.1 percent (preliminary figure)
• German economy: 0%
• Italian economy: no growth
• Japan: -0.4%

Tourism Shares Decline during Political Rift with Beijing

Alongside the GDP decline, Japan is facing an growing diplomatic conflict with China concerning Taiwan.

Stocks in Japanese travel and retail businesses have dropped significantly after China urged its citizens to avoid traveling to Japan.

This move by Beijing escalated a political dispute that was sparked by comments from Tokyo's recently appointed prime minister about the possibility of sending troops in the case of a hypothetical Chinese invasion on Taiwan.

The development triggered a wave of selling across Japan's leisure stocks.

• Oriental Land stock dropped by 5.7%
• Isetan Mitsukoshi plummeted by 11.3 percent
• The national carrier fell by 3.75 percent

"The China-Japan dispute over Taiwan and China's advisory advising against travel to Japan creates short-term difficulties for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and tourism services especially at risk."

Economic Decline Details

Japanese GDP fell by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were impacted by tariffs imposed by the US recently.

Exports were a primary driver of the decline, dropping by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a year ago.

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

"Japan's economy was solid in the first half of this year and the latest GDP data showed that momentum is paused temporarily.

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

The White House has lately recognized the effect of tariffs on US consumers, reducing tariffs on food imports including meat, tomatoes, beverages and fruits amid increasing concerns about rising costs.

Economic Calendar

• 8am GMT: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August