🔗 Share this article

Japan's economy has recorded a decline for the first time in six quarters, primarily caused by weakening overseas shipments as a result of recent US tariffs.

G7 Economic Rankings

The Japanese economy has become the initial G7 economy to report an economic contraction in the latest quarter.

As the US still needing to release its GDP figures for the third quarter, the current Group of Seven growth leaderboard indicate:

• France: 0.5 percent quarterly growth
• UK: 0.1 percent
• Canadian economy: +0.1% (provisional estimate)
• German economy: zero growth
• Italy: 0%
• Japanese economy: -0.4%

Tourism Shares Slump during Diplomatic Dispute with Beijing

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

Shares in Japanese travel and consumer firms have dropped sharply after China recommended its residents to refrain from visiting to Japan.

This move by Chinese authorities intensified a political dispute that was initiated by remarks from Japan's new PM about the possibility of deploying troops in the case of a potential Chinese attack on Taiwan.

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

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

"The ongoing dispute over Taiwan and China's advisory discouraging travel to Japan introduces short-term headwinds for consumer-facing sectors.

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

GDP Contraction Details

Japanese gross domestic product fell by 0.4 percent in the July-September quarter, as manufacturers' exports were impacted by duties levied by the United States recently.

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

Previously, the American government had proposed Japan with a additional 25 percent tariff on its products, which was later reduced to 15 percent when the two nations concluded a trade deal.

Private demand also declined, by 0.3 percent compared to the previous quarter.

On an annual 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 data showed that momentum is paused for now.

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

The US administration has lately recognized the impact of tariffs on Americans, lowering tariffs on food imports including beef, produce, coffee and fruits amid increasing concerns about rising costs.

Business Agenda

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