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The Japanese economic system has recorded a decline for the first time in a year and a half, primarily driven by weakening overseas shipments because of newly imposed US tariffs.

G7 Economic Rankings

The Japanese economy stands as the first Group of Seven economy to report an GDP decline in the previous three-month period.

With the United States still needing to publish its GDP figures for Q3 2025, the current Group of Seven economic rankings show:

• France: 0.5 percent quarterly growth
• UK: +0.1%
• Canadian economy: 0.1 percent (preliminary figure)
• Germany: 0%
• Italian economy: no growth
• Japanese economy: -0.4%

Tourism Stocks Slump during Political Rift with China

In addition to the economic contraction, Japan is experiencing an escalating diplomatic tension with China regarding Taiwan.

Shares in Japanese tourism and retail businesses have dropped significantly after China urged its citizens to refrain from visiting to Japan.

This decision by Beijing escalated a diplomatic feud that was sparked by comments from Japan's recently appointed PM about the potential of sending troops in the event of a hypothetical Chinese attack on Taiwan.

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

• The Tokyo Disneyland operator shares dropped by 5.7%
• Isetan Mitsukoshi plummeted by 11.3 percent
• Japan Airlines declined by 3.75 percent

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

"Tourists from China represent roughly 25% of Japan's inbound traffic, making retail outlets, high-end shopping, and hospitality particularly at risk."

Economic Contraction Breakdown

Japan's gross domestic product dropped by 0.4 percent in the third quarter, as industrial exports were affected by duties levied by the United States recently.

Overseas shipments were a major driver of the decline, falling by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.

Earlier this year, the US administration had threatened Japan with a new 25% tariff on its products, which was later reduced to 15% when the two countries concluded a trade agreement.

Private demand also declined, by 0.3% compared to the previous quarter.

On an annual basis, Japan's GDP contracted by 1.8% in the three months through September.

"The Japanese economic situation was strong in the first half of this year and today's GDP data showed that momentum is paused for now.

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

The White House has lately recognized the impact of tariffs on Americans, lowering tariffs on imported food products including beef, produce, coffee and fruits amid increasing concerns about rising costs.

Business Agenda

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