🔗 Share this article

The Japanese economic system has recorded a contraction for the first time in six quarters, primarily caused by falling overseas shipments because of recent US trade duties.

G7 Economic Standings

The Japanese economy stands as the initial Group of Seven economy to report an output shrinkage in the most recent three-month period.

With the US still needing to release its gross domestic product figures for Q3 2025, the present Group of Seven economic standings display:

• France: 0.5 percent quarterly growth
• United Kingdom: 0.1 percent
• Canada: +0.1% (provisional estimate)
• Germany: zero growth
• Italy: no growth
• Japan: -0.4%

Tourism Stocks Decline amid Diplomatic Dispute with China

Alongside the GDP decline, Japan is dealing with an growing diplomatic dispute with China concerning Taiwan.

Shares in Japanese tourism and consumer businesses have declined sharply after China urged its citizens to refrain from traveling to Japan.

This action by Beijing escalated a diplomatic feud that was sparked by remarks from Japan's recently appointed prime minister about the potential of deploying forces in the event of a potential Chinese invasion on Taiwan.

The situation caused a surge of selling across Japanese leisure stocks.

• The Tokyo Disneyland operator stock dropped by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3 percent
• Japan Airlines fell by 3.75%

"The ongoing tension over Taiwan and Beijing's advisory discouraging visits to Japan brings near-term headwinds for consumer-facing sectors.

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and hospitality especially vulnerable."

Economic Decline Breakdown

Japanese GDP fell by 0.4% in the third quarter, as manufacturers' exports were hit by duties imposed by the US this year.

Exports were a key driver of the decline, dropping by 1.2 percent compared with the previous quarter, and were 4.5% lower than a year ago.

Previously, the American government had proposed Japan with a new 25 percent tariff on its products, which was later lowered to 15% when the two countries concluded a trade deal.

Private demand also declined, by 0.3 percent quarter-on-quarter.

On an annual basis, Japan's real gross domestic product contracted by 1.8 percent in the three months 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 temporarily.

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

The US administration has recently recognized the impact of tariffs on Americans, lowering tariffs on food imports including meat, produce, coffee and bananas 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