🔗 Share this article

Japan's economy has experienced a contraction for the first time in six quarters, largely driven by weakening exports as a result of newly imposed US tariffs.

Group of Seven Economic Standings

Japan has become the first Group of Seven economy to report an GDP decline in the latest quarter.

As the US yet to publish its gross domestic product data for the third quarter, the current Group of Seven economic rankings indicate:

• France: +0.5% expansion
• UK: +0.1%
• Canada: 0.1 percent (provisional estimate)
• Germany: 0%
• Italian economy: no growth
• Japan: negative 0.4 percent

Travel Stocks Decline during Diplomatic Rift with China

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

Stocks in Japan's travel and consumer businesses have dropped sharply after China urged its citizens to refrain from visiting to Japan.

This action by Beijing heightened a diplomatic feud that was initiated by statements from Japan's recently appointed prime minister about the potential of deploying troops in the event of a potential Chinese attack on Taiwan.

The development caused a surge of selling across Japan's tourism-related shares.

• Oriental Land stock dropped by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3%
• Japan Airlines declined by 3.75 percent

"The ongoing tension over Taiwan and Beijing's advisory advising against travel to Japan brings near-term headwinds for consumer-facing sectors.

"Tourists from China represent roughly 25% of Japan's inbound traffic, making department stores, high-end shopping, and hospitality particularly at risk."

GDP Decline Details

Japan's gross domestic product fell by 0.4% in the July-September quarter, as industrial overseas shipments were impacted by duties imposed by the United States this year.

Exports were a key factor of the contraction, falling by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a year ago.

Previously, the American government had threatened Japan with a additional 25 percent tariff on its products, which was later lowered to 15% when the two countries concluded a trade agreement.

Private demand also declined, by 0.3 percent compared to the previous quarter.

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

"The Japanese economic situation was stable in the initial six months of this year and today's GDP data showed that growth is paused temporarily.

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

The White House has lately recognized the impact of tariffs on US consumers, lowering tariffs on food imports including beef, tomatoes, beverages and fruits amid growing concerns about rising costs.

Business Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August