The Japanese Economic Output Shrinks as Exports Are Hit by American Trade Duties

Japan's economy has experienced a contraction for the first time in six quarters, primarily caused by falling overseas shipments due to recent American tariffs.

Group of Seven Economic Rankings

The Japanese economy has become the first Group of Seven nation to report an economic contraction in the latest three-month period.

As the US still needing to release its GDP data for Q3 2025, the present G7 growth leaderboard show:

• The French economy: 0.5 percent quarterly growth
• UK: 0.1 percent
• Canada: +0.1% (provisional estimate)
• German economy: 0%
• Italy: no growth
• Japan: negative 0.4 percent

Travel Shares Slump during Diplomatic Dispute with China

In addition to the economic contraction, Japan is facing an growing diplomatic tension with China concerning Taiwan.

Shares in Japanese tourism and consumer businesses have declined significantly after China advised its residents to avoid traveling to Japan.

This decision by Beijing heightened a diplomatic feud that was triggered by comments from Tokyo's new PM about the possibility of sending troops in the case of a hypothetical Chinese attack on Taiwan.

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

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

"The China-Japan tension over Taiwan and China's advisory discouraging travel to Japan introduces short-term difficulties for retail and hospitality sectors.

"Chinese visitors account for roughly 25% of Japan's international visitors, making department stores, high-end shopping, and tourism services especially vulnerable."

Economic Decline Details

Japan's gross domestic product dropped by 0.4% in the July-September quarter, as manufacturers' exports were hit by tariffs levied by the US recently.

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

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

Consumer spending also fell, 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 initial six months of this year and today's GDP figures showed that momentum is halted for now.

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

The White House has lately recognized the effect of tariffs on Americans, reducing duties on imported food products including meat, produce, beverages and bananas amid growing concerns about increasing costs.

Business Agenda

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