The Japanese Economy Declines while Exports Suffer by US Trade Duties

The Japanese economic system has shown a contraction for the initial time in six quarters, largely caused by declining exports due to recent American tariffs.

Group of Seven Growth Rankings

The Japanese economy has become the first Group of Seven country to announce an economic contraction in the most recent quarter.

With the US still needing to publish its GDP data for Q3 2025, the current G7 growth standings indicate:

• The French economy: 0.5 percent quarterly growth
• UK: +0.1%
• Canadian economy: 0.1 percent (preliminary figure)
• German economy: 0%
• Italian economy: 0%
• Japan: -0.4%

Tourism Shares Slump amid Diplomatic Rift with China

Alongside the GDP decline, Japan is experiencing an growing diplomatic tension with China concerning Taiwan.

Shares in Japanese tourism and retail companies have dropped significantly after China recommended its citizens to refrain from visiting to Japan.

This move by Beijing intensified a diplomatic feud that was initiated by remarks from Tokyo's recently appointed prime minister about the possibility of sending forces in the case of a hypothetical Chinese attack on Taiwan.

The development led to a wave of selling across Japanese leisure shares.

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

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

"Chinese visitors account for roughly 25 percent of Japan's inbound traffic, making retail outlets, high-end shopping, and tourism services especially at risk."

GDP Contraction Breakdown

Japan's GDP declined by 0.4% in the July-September quarter, as manufacturers' overseas shipments were impacted by tariffs levied by the US this year.

Overseas shipments were a major driver of the contraction, dropping 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 new 25% tariff on its goods, which was later lowered to 15 percent when the two countries reached a trade deal.

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

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

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

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

The US administration has recently acknowledged the impact of tariffs on Americans, lowering duties on imported food products including beef, tomatoes, beverages and bananas amid growing concerns about increasing costs.

Economic Agenda

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