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Japan's economy has shown a contraction for the first time in six quarters, primarily caused by weakening exports as a result of recent American tariffs.

Group of Seven Economic Rankings

The Japanese economy has become the first G7 country to disclose an GDP decline in the most recent quarter.

With the United States yet to release its GDP data for Q3 2025, the present Group of Seven economic rankings indicate:

• The French economy: +0.5% expansion
• UK: 0.1 percent
• Canadian economy: 0.1 percent (preliminary figure)
• Germany: 0%
• Italy: no growth
• Japanese economy: -0.4%

Tourism Shares Slump during Political Dispute with China

Alongside the economic contraction, Japan is facing an intensifying diplomatic conflict with China concerning Taiwan.

Shares in Japan's tourism and retail businesses have declined significantly after China recommended its residents to avoid traveling to Japan.

This decision by Chinese authorities escalated a political dispute that was sparked by statements from Japan's recently appointed PM about the potential of deploying forces in the event of a hypothetical Chinese invasion on Taiwan.

The situation led to a wave of sell-offs across Japanese leisure shares.

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

"The China-Japan dispute over Taiwan and China's advisory advising against travel to Japan introduces near-term challenges for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and hospitality especially at risk."

Economic Decline Breakdown

Japanese gross domestic product fell by 0.4% in the third quarter, as industrial overseas shipments were affected by duties levied by the United States this year.

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

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

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

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

"The Japanese economic situation was strong in the initial six months of this year and today's GDP data showed that growth is halted temporarily.

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

The US administration has lately acknowledged the impact of tariffs on Americans, reducing duties on food imports including meat, produce, beverages and fruits amid increasing concerns about rising costs.

Business Agenda

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