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Japan's economy has experienced a contraction for the first time in six quarters, primarily driven by falling exports due to newly imposed American tariffs.

Group of Seven Growth Leaderboard

Japan has become the initial Group of Seven economy to announce an GDP decline in the most recent three-month period.

With the US still needing to publish its gross domestic product data for Q3 2025, the current Group of Seven economic standings indicate:

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

Tourism Stocks Decline amid Political Rift with Beijing

In addition to the economic contraction, Japan is facing an intensifying political conflict with China concerning Taiwan.

Shares in Japan's travel and consumer companies have declined sharply after China advised its nationals to refrain from visiting to Japan.

This move by Beijing heightened a political dispute that was triggered by remarks from Japan's recently appointed prime minister about the possibility of sending troops in the event of a hypothetical Chinese attack on Taiwan.

The development led to a wave of sell-offs across Japan's leisure stocks.

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

"The ongoing dispute over Taiwan and Beijing's advisory advising against visits to Japan introduces near-term headwinds for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and tourism services particularly vulnerable."

GDP Contraction Breakdown

Japan's GDP dropped by 0.4% in the July-September quarter, as industrial exports were hit by duties imposed by the US recently.

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

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

Consumer spending also fell, by 0.3 percent quarter-on-quarter.

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

"The Japanese economic situation was solid in the first half of this year and the latest GDP data showed that growth is halted temporarily.

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

The US administration has recently acknowledged the effect of tariffs on US consumers, lowering tariffs on imported food products including beef, produce, coffee and fruits amid increasing concerns about increasing costs.

Economic Agenda

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