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The Japanese economic system has recorded a decline for the initial time in a year and a half, mainly caused by falling overseas shipments as a result of newly imposed US tariffs.

Group of Seven Growth Rankings

The Japanese economy stands as the first G7 economy to announce an GDP decline in the latest three-month period.

As the United States yet to release its GDP figures for Q3 2025, the current G7 economic standings display:

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

Travel Stocks Slump during Political Dispute with China

Alongside the economic contraction, Japan is facing an growing political dispute with China concerning Taiwan.

Stocks in Japan's tourism and retail companies have fallen noticeably after China urged its residents to refrain from traveling to Japan.

This decision by Beijing escalated a diplomatic feud that was sparked by comments from Japan's new prime minister about the potential of deploying troops in the event of a potential Chinese attack on Taiwan.

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

• Oriental Land stock dropped by 5.7%
• The department store chain plummeted by 11.3 percent
• The national carrier fell by 3.75%

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

"Tourists from China account for roughly 25% of Japan's inbound traffic, making department stores, high-end shopping, and hospitality especially at risk."

Economic Contraction Breakdown

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

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

Earlier this year, the American government had threatened Japan with a additional 25 percent tariff on its goods, which was later lowered to 15% when the two nations concluded a trade deal.

Consumer spending also declined, by 0.3 percent quarter-on-quarter.

On an annualized basis, Japan's real gross domestic product contracted by 1.8 percent in the quarter through September.

"The Japanese economic situation was stable in the first half of this year and the latest GDP figures showed that momentum is paused for now.

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

The White House has lately acknowledged the impact of tariffs on US consumers, lowering tariffs on imported food products including meat, tomatoes, coffee and fruits amid growing concerns about rising costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August