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Japan's economy has shown a drop for the initial time in a year and a half, primarily caused by declining exports because of newly imposed US tariffs.

G7 Economic Leaderboard

Japan has become the first Group of Seven country to announce an output shrinkage in the latest three-month period.

With the US still needing to publish its GDP figures for Q3 2025, the present Group of Seven economic leaderboard display:

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

Travel Shares Slump during Political Rift with China

Alongside the economic contraction, Japan is dealing with an growing political dispute with China regarding Taiwan.

Shares in Japanese travel and retail companies have fallen noticeably after China urged its residents to refrain from visiting to Japan.

This action by Beijing intensified a political dispute that was triggered by remarks from Tokyo's recently appointed PM about the potential of sending forces in the case of a hypothetical Chinese attack on Taiwan.

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

• Oriental Land stock fell by 5.7%
• Isetan Mitsukoshi tumbled by 11.3%
• The national carrier declined by 3.75 percent

"The ongoing tension over Taiwan and China's advisory advising against travel to Japan brings short-term challenges for retail and hospitality sectors.

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

GDP Contraction Breakdown

Japanese gross domestic product declined by 0.4 percent in the third quarter, as industrial overseas shipments were hit by duties levied by the US this year.

Overseas shipments were a major driver of the decline, dropping by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a year ago.

Previously, the American government had proposed Japan with a new 25% tariff on its goods, which was later reduced 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 GDP shrank by 1.8 percent in the three months through September.

"The Japanese economic situation was strong in the first half of this year and the latest GDP data showed that momentum is paused temporarily.

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

The US administration has lately acknowledged the impact of tariffs on Americans, lowering tariffs on food imports including meat, produce, coffee and fruits 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