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Japan's economy has experienced a contraction for the first time in six quarters, largely driven by weakening overseas shipments due to newly imposed US trade duties.

G7 Economic Rankings

The Japanese economy stands as the initial G7 country to report an output shrinkage in the latest three-month period.

With the US still needing to release its gross domestic product data for Q3 2025, the current G7 economic rankings indicate:

• The French economy: 0.5 percent quarterly growth
• UK: 0.1 percent
• Canada: +0.1% (preliminary figure)
• Germany: zero growth
• Italian economy: no growth
• Japanese economy: negative 0.4 percent

Travel Shares Decline amid Political Dispute with Beijing

Alongside the GDP decline, Japan is facing an intensifying diplomatic tension with China regarding Taiwan.

Stocks in Japanese travel and retail companies have fallen sharply after China urged its nationals to avoid visiting to Japan.

This action by Beijing escalated a political dispute that was triggered by comments from Tokyo's new prime minister about the potential of sending troops in the event of a potential Chinese invasion on Taiwan.

The development triggered a wave of selling across Japanese leisure stocks.

• The Tokyo Disneyland operator shares dropped by 5.7%
• The department store chain plummeted by 11.3 percent
• Japan Airlines declined by 3.75%

"The ongoing dispute over Taiwan and China's advisory advising against visits to Japan creates short-term challenges for retail and hospitality sectors.

"Chinese visitors account for roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and hospitality particularly vulnerable."

Economic Decline Breakdown

Japan's gross domestic product declined by 0.4 percent in the July-September quarter, as industrial overseas shipments were affected by duties imposed by the United States recently.

Exports were a primary driver of the decline, falling 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 proposed Japan with a additional 25% tariff on its goods, which was later reduced to 15% when the two nations reached a trade agreement.

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 percent in the three months through September.

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

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

The White House has recently acknowledged the impact of tariffs on Americans, reducing tariffs on imported food products including meat, produce, beverages and bananas amid increasing concerns about rising costs.

Economic Agenda

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