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Japan's economy has shown a drop for the first time in a year and a half, mainly caused by falling overseas shipments because of recent US tariffs.

G7 Growth Standings

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

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

• France: +0.5% expansion
• UK: 0.1 percent
• Canada: +0.1% (provisional estimate)
• German economy: zero growth
• Italian economy: no growth
• Japanese economy: -0.4%

Tourism Stocks Slump during Political Rift with Beijing

Alongside the GDP decline, Japan is facing an intensifying political conflict with China regarding Taiwan.

Shares in Japanese travel and consumer companies have dropped significantly after China advised its residents to refrain from traveling to Japan.

This action by Chinese authorities escalated a diplomatic feud that was sparked by comments from Japan's recently appointed prime minister about the potential of sending forces in the case of a potential Chinese invasion on Taiwan.

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

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

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

"Chinese visitors account for roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and hospitality particularly vulnerable."

GDP Contraction Breakdown

Japan's gross domestic product fell by 0.4% in the third quarter, as industrial exports were affected by duties imposed by the US this year.

Exports were a primary driver of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5% lower than a the same period last year.

Earlier this year, the US administration had proposed Japan with a new 25 percent tariff on its goods, which was later lowered to 15% when the two countries reached a trade agreement.

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

On an annualized basis, Japan's GDP contracted by 1.8% in the quarter through September.

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

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

The White House has lately acknowledged the effect of tariffs on Americans, lowering duties on food imports including meat, tomatoes, coffee and bananas amid increasing concerns about increasing costs.

Economic Agenda

• 8am GMT: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August