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The Japanese economic system has recorded a contraction for the first time in a year and a half, mainly driven by falling overseas shipments as a result of recent US tariffs.

Group of Seven Economic Rankings

Japan stands as the initial Group of Seven country to announce an GDP decline in the previous quarter.

With the US still needing to publish its gross domestic product data for Q3 2025, the present Group of Seven economic rankings display:

• France: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canada: 0.1 percent (preliminary figure)
• German economy: 0%
• Italian economy: 0%
• Japanese economy: negative 0.4 percent

Tourism Stocks Decline amid Political Dispute with Beijing

Alongside the GDP decline, Japan is dealing with an intensifying political tension with China concerning Taiwan.

Shares in Japan's tourism and consumer companies have declined noticeably after China urged its citizens to avoid traveling to Japan.

This decision by Chinese authorities heightened a diplomatic feud that was initiated by remarks from Tokyo's new prime minister about the potential of sending troops in the event of a potential Chinese attack on Taiwan.

The situation triggered a wave of selling across Japanese leisure shares.

• Oriental Land shares fell by 5.7 percent
• The department store chain tumbled by 11.3%
• The national carrier declined by 3.75%

"The ongoing tension over Taiwan and China's advisory discouraging travel to Japan introduces short-term difficulties for consumer-facing sectors.

"Tourists from China represent roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services especially vulnerable."

Economic Decline Breakdown

Japanese GDP fell by 0.4 percent in the July-September quarter, as industrial exports were hit by tariffs imposed by the United States recently.

Overseas shipments were a primary driver 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 additional 25 percent tariff on its products, which was later reduced to 15% when the two nations reached a trade agreement.

Private demand also fell, by 0.3 percent quarter-on-quarter.

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

"Japan's economy was solid 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 moderate growth trend going forward."

The US administration has lately acknowledged the impact of tariffs on Americans, reducing duties on food imports including beef, produce, beverages and fruits amid increasing concerns about rising costs.

Economic Calendar

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