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The Japanese economic system has shown a contraction for the first time in a year and a half, primarily driven by weakening exports because of newly imposed US tariffs.

Group of Seven Economic Leaderboard

Japan has become the initial G7 country to announce an output shrinkage in the latest quarter.

With the United States yet to release its gross domestic product data for Q3 2025, the present G7 growth rankings indicate:

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

Travel Shares Decline during Political Dispute with China

In addition to the GDP decline, Japan is facing an growing political dispute with China regarding Taiwan.

Shares in Japanese tourism and consumer companies have declined sharply after China urged its citizens to refrain from visiting to Japan.

This move by Beijing heightened a political dispute that was triggered by comments from Tokyo's recently appointed PM about the possibility of sending troops in the case of a hypothetical Chinese attack on Taiwan.

The situation triggered a wave of sell-offs across Japanese tourism-related stocks.

• The Tokyo Disneyland operator shares dropped by 5.7 percent
• The department store chain tumbled by 11.3%
• The national carrier declined by 3.75%

"The China-Japan dispute over Taiwan and China's advisory discouraging travel to Japan creates near-term difficulties for retail and hospitality sectors.

"Chinese visitors represent roughly 25% of Japan's international visitors, making department stores, luxury retail, and tourism services particularly at risk."

GDP Decline Breakdown

Japanese gross domestic product dropped by 0.4% in the third quarter, as manufacturers' overseas shipments were affected by duties imposed by the US recently.

Overseas shipments were a primary driver of the contraction, falling by 1.2% compared with the April-June quarter, and were 4.5% lower than a year ago.

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

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

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

"The Japanese economic situation was strong in the initial six months of this year and the latest GDP figures showed that momentum is halted for now.

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

The US administration has recently recognized the impact of tariffs on US consumers, reducing duties on food imports including beef, produce, coffee and fruits amid growing concerns about rising costs.

Business Calendar

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