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Japan's economy has experienced a contraction for the first time in a year and a half, mainly caused by declining overseas shipments due to newly imposed American trade duties.

G7 Growth Standings

The Japanese economy has become the first Group of Seven economy to disclose an GDP decline in the most recent quarter.

As the US still needing to publish its GDP figures for Q3 2025, the present Group of Seven economic standings show:

• The French economy: 0.5 percent expansion
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (preliminary figure)
• Germany: zero growth
• Italy: no growth
• Japanese economy: negative 0.4 percent

Tourism Shares Slump amid Political Dispute with Beijing

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

Stocks in Japan's travel and retail firms have declined noticeably after China advised its residents to refrain from visiting to Japan.

This decision by Beijing intensified a political dispute that was initiated by comments from Japan's new prime minister about the potential of sending troops in the event of a potential Chinese attack on Taiwan.

The development triggered a wave of sell-offs across Japanese tourism-related shares.

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

"The ongoing dispute over Taiwan and Beijing's advisory discouraging visits to Japan introduces short-term headwinds for retail and hospitality sectors.

"Chinese visitors account for roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and tourism services especially at risk."

GDP Decline Breakdown

Japan's GDP declined by 0.4 percent in the third quarter, as manufacturers' exports were hit by duties levied by the US recently.

Exports were a primary driver of the contraction, falling by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

Earlier this year, the US administration had proposed Japan with a additional 25 percent tariff on its products, which was later reduced to 15 percent when the two countries concluded a trade agreement.

Private demand also fell, by 0.3% quarter-on-quarter.

On an annual basis, Japan's GDP shrank by 1.8% in the three months through September.

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

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

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

Business Calendar

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