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The Japanese economic system has experienced a decline for the first time in a year and a half, mainly driven by falling overseas shipments as a result of newly imposed US tariffs.

Group of Seven Growth Standings

The Japanese economy stands as the initial Group of Seven country to announce an output shrinkage in the latest quarter.

With the United States yet to publish its GDP data for Q3 2025, the present G7 economic leaderboard show:

• France: +0.5% quarterly growth
• UK: +0.1%
• Canadian economy: +0.1% (preliminary figure)
• Germany: zero growth
• Italy: no growth
• Japanese economy: -0.4%

Tourism Stocks Slump during Political Rift with China

Alongside the economic contraction, Japan is experiencing an intensifying political tension with China regarding Taiwan.

Stocks in Japan's travel and retail firms have declined noticeably after China advised its citizens to avoid traveling to Japan.

This action by Beijing heightened a diplomatic feud that was triggered by remarks from Tokyo's recently appointed PM about the potential of sending forces in the event of a potential Chinese attack on Taiwan.

The situation led to a wave of sell-offs across Japan's leisure stocks.

• Oriental Land shares dropped by 5.7%
• The department store chain tumbled by 11.3 percent
• The national carrier declined by 3.75 percent

"The China-Japan dispute over Taiwan and Beijing's travel warning discouraging visits to Japan creates short-term challenges for consumer-facing sectors.

"Tourists from China represent roughly 25% of Japan's inbound traffic, making retail outlets, high-end shopping, and tourism services especially at risk."

Economic Decline Breakdown

Japanese gross domestic product dropped by 0.4% in the third quarter, as industrial overseas shipments were impacted by duties levied by the United States this year.

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

Earlier this year, the US administration had threatened 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 fell, by 0.3% quarter-on-quarter.

On an annualized basis, Japan's GDP shrank by 1.8 percent in the quarter through September.

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

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

The US administration has lately recognized the effect of tariffs on US consumers, reducing tariffs on food imports including beef, produce, beverages and fruits amid growing concerns about rising costs.

Business Calendar

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August