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The Japanese economic system has experienced a contraction for the initial time in six quarters, mainly driven by falling overseas shipments as a result of recent American tariffs.

Group of Seven Economic Leaderboard

The Japanese economy has become the first G7 nation to report an output shrinkage in the previous quarter.

As the US still needing to publish its gross domestic product figures for Q3 2025, the present Group of Seven economic leaderboard indicate:

• France: 0.5 percent expansion
• United Kingdom: +0.1%
• Canadian economy: 0.1 percent (provisional estimate)
• German economy: zero growth
• Italian economy: no growth
• Japan: -0.4%

Tourism Shares Decline amid Political Dispute with China

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

Stocks in Japan's tourism and consumer firms have declined sharply after China recommended its citizens to avoid visiting to Japan.

This decision by Chinese authorities heightened a diplomatic feud that was initiated by statements from Japan's new PM about the possibility of sending troops in the case of a hypothetical Chinese invasion on Taiwan.

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

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

"The ongoing tension over Taiwan and China's travel warning advising against travel to Japan creates short-term challenges for retail and hospitality sectors.

"Chinese visitors account for roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and hospitality particularly at risk."

Economic Decline Details

Japanese gross domestic product declined by 0.4% in the July-September quarter, as manufacturers' exports were hit by duties levied by the US this year.

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

Earlier this year, the US administration had proposed Japan with a new 25% tariff on its products, which was later lowered to 15 percent when the two nations concluded a trade deal.

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

On an annualized basis, Japan's GDP 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 figures showed that growth is halted temporarily.

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

The US administration has lately acknowledged the effect of tariffs on US consumers, reducing duties on food imports including meat, produce, coffee and fruits amid growing concerns about increasing costs.

Business Agenda

• 8am GMT: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August