🔗 Share this article

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

G7 Economic Rankings

Japan has become the initial Group of Seven nation to announce an economic contraction in the latest three-month period.

With the United States still needing to publish its gross domestic product data for the third quarter, the current Group of Seven growth rankings display:

• The French economy: 0.5 percent quarterly growth
• United Kingdom: +0.1%
• Canadian economy: 0.1 percent (provisional estimate)
• German economy: zero growth
• Italy: no growth
• Japanese economy: -0.4%

Tourism Shares Decline amid Diplomatic Rift with Beijing

Alongside the GDP decline, Japan is dealing with an intensifying political conflict with China concerning Taiwan.

Shares in Japan's tourism and consumer firms have fallen noticeably after China advised its nationals to refrain from visiting to Japan.

This action by Beijing heightened a political dispute that was triggered by remarks from Japan's new prime minister about the possibility of deploying forces in the event of a potential Chinese invasion on Taiwan.

The development triggered a surge of selling across Japanese tourism-related shares.

• The Tokyo Disneyland operator shares fell by 5.7%
• Isetan Mitsukoshi tumbled by 11.3 percent
• Japan Airlines fell by 3.75%

"The China-Japan tension over Taiwan and Beijing's travel warning discouraging visits to Japan creates near-term challenges for consumer-facing sectors.

"Tourists from China account for roughly 25% of Japan's international visitors, making retail outlets, luxury retail, and hospitality particularly at risk."

GDP Contraction Details

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

Overseas shipments 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 year ago.

Previously, the American government had proposed Japan with a additional 25 percent tariff on its goods, which was later reduced to 15% when the two countries concluded a trade agreement.

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

On an annual basis, Japan's real gross domestic product contracted by 1.8% in the three months through September.

"Japan's economy was strong in the first half of this year and the latest GDP data showed that growth is paused temporarily.

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

The White House has recently acknowledged the effect of tariffs on Americans, lowering duties on food imports including meat, produce, coffee and fruits amid growing concerns about rising costs.

Economic Agenda

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