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The Japanese economic system has experienced a contraction for the first time in six quarters, mainly driven by falling exports because of newly imposed American tariffs.

Group of Seven Economic Rankings

Japan has become the initial Group of Seven economy to disclose an GDP decline in the latest three-month period.

With the US still needing to publish its gross domestic product data for Q3 2025, the present G7 growth standings show:

• France: 0.5 percent expansion
• UK: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• Germany: zero growth
• Italy: no growth
• Japan: negative 0.4 percent

Tourism Shares Decline during Diplomatic Dispute with Beijing

In addition to the economic contraction, Japan is experiencing an intensifying diplomatic dispute with China regarding Taiwan.

Shares in Japan's tourism and retail businesses have dropped sharply after China advised its nationals to refrain from traveling to Japan.

This move by Beijing intensified a political dispute that was triggered by comments from Japan's recently appointed prime minister about the possibility of deploying troops in the event of a hypothetical Chinese attack on Taiwan.

The development led to a surge of selling across Japanese leisure stocks.

• The Tokyo Disneyland operator stock dropped by 5.7%
• The department store chain tumbled by 11.3 percent
• The national carrier declined by 3.75 percent

"The ongoing tension over Taiwan and Beijing's travel warning advising against visits to Japan brings near-term difficulties for retail and hospitality sectors.

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

Economic Contraction Breakdown

Japan's GDP dropped by 0.4 percent in the July-September quarter, as industrial overseas shipments were affected by duties levied by the US recently.

Overseas shipments were a key factor 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 percent tariff on its goods, which was later lowered to 15 percent when the two countries reached a trade agreement.

Private demand also fell, by 0.3% quarter-on-quarter.

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

"Japan's economy was strong in the first half of this year and the latest GDP figures showed that growth is halted temporarily.

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

The White House has lately recognized the effect of tariffs on Americans, reducing duties on imported food products including beef, tomatoes, beverages and fruits amid increasing concerns about rising costs.

Business Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August