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The Japanese economic system has experienced a decline for the first time in six quarters, mainly driven by weakening overseas shipments as a result of recent American trade duties.

G7 Growth Rankings

The Japanese economy has become the initial Group of Seven economy to report an output shrinkage in the latest three-month period.

As the United States still needing to release its gross domestic product figures for Q3 2025, the current G7 economic leaderboard show:

• The French economy: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canadian economy: +0.1% (preliminary figure)
• Germany: 0%
• Italian economy: 0%
• Japan: -0.4%

Tourism Stocks Decline during Political Rift with China

In addition to the economic contraction, Japan is dealing with an intensifying diplomatic tension with China concerning Taiwan.

Shares in Japan's travel and retail businesses have fallen sharply after China advised its citizens to refrain from traveling to Japan.

This decision by Chinese authorities intensified a diplomatic feud that was sparked by statements from Tokyo's new PM about the possibility of deploying troops in the event of a potential Chinese attack on Taiwan.

The development led to a surge of sell-offs across Japanese tourism-related shares.

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

"The China-Japan dispute over Taiwan and Beijing's advisory advising against visits to Japan introduces short-term headwinds for consumer-facing sectors.

"Chinese visitors account for roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and hospitality especially vulnerable."

GDP Contraction Details

Japanese gross domestic product dropped by 0.4% in the third quarter, as manufacturers' exports were impacted by tariffs levied by the US recently.

Exports were a key factor of the decline, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a year ago.

Earlier this year, the US administration had threatened Japan with a additional 25 percent tariff on its goods, which was later lowered to 15 percent when the two countries reached a trade deal.

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

On an annualized basis, Japan's GDP shrank by 1.8% in the quarter 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 recognized the effect of tariffs on Americans, reducing duties on imported food products including meat, produce, beverages and fruits amid increasing concerns about increasing costs.

Business Agenda

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