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Japan's economy has shown a contraction for the first time in a year and a half, mainly caused by declining overseas shipments due to recent American tariffs.

G7 Growth Leaderboard

The Japanese economy has become the first G7 economy to announce an economic contraction in the previous three-month period.

As the US still needing to release its GDP data for Q3 2025, the current G7 economic standings show:

• France: 0.5 percent expansion
• UK: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• German economy: zero growth
• Italian economy: 0%
• Japanese economy: negative 0.4 percent

Tourism Shares Decline amid Diplomatic Rift with Beijing

In addition to the GDP decline, Japan is dealing with an growing political dispute with China concerning Taiwan.

Stocks in Japan's travel and retail businesses have dropped sharply after China urged its citizens to refrain from visiting to Japan.

This action by Beijing heightened a diplomatic feud that was sparked by remarks from Tokyo's new prime minister about the potential of sending troops in the case of a hypothetical Chinese invasion on Taiwan.

The situation caused a surge of selling across Japan's leisure stocks.

• Oriental Land shares dropped by 5.7 percent
• The department store chain plummeted by 11.3 percent
• Japan Airlines fell by 3.75 percent

"The China-Japan dispute over Taiwan and Beijing's advisory advising against travel to Japan introduces short-term headwinds 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 particularly vulnerable."

GDP Decline Details

Japanese gross domestic product declined by 0.4 percent in the third quarter, as industrial overseas shipments were impacted by duties imposed by the United States this year.

Exports were a primary factor of the contraction, dropping by 1.2% compared with the previous quarter, and were 4.5 percent lower than a year ago.

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

Consumer spending also fell, by 0.3 percent compared to the previous quarter.

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

"The Japanese economic situation was strong in the first half of this year and the latest GDP figures showed that growth is halted for now.

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

The US administration has recently recognized the effect of tariffs on US consumers, lowering tariffs on food imports including beef, tomatoes, coffee and bananas amid increasing concerns about increasing costs.

Business Agenda

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