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The Japanese economic system has shown a contraction for the first time in six quarters, primarily caused by declining overseas shipments due to recent US tariffs.

G7 Economic Rankings

Japan stands as the first G7 nation to report an output shrinkage in the previous quarter.

As the United States still needing to release its gross domestic product figures for Q3 2025, the current G7 economic rankings show:

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

Travel Stocks Slump amid Diplomatic Dispute with China

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

Stocks in Japan's tourism and retail businesses have fallen significantly after China urged its citizens to refrain from traveling to Japan.

This move by Chinese authorities intensified a diplomatic feud that was initiated by statements from Tokyo's new prime minister about the potential of deploying troops in the event of a hypothetical Chinese invasion on Taiwan.

The situation caused a wave of selling across Japan's leisure stocks.

• Oriental Land shares fell by 5.7%
• Isetan Mitsukoshi tumbled by 11.3 percent
• The national carrier declined by 3.75%

"The ongoing tension over Taiwan and Beijing's travel warning discouraging travel to Japan creates near-term challenges for retail and hospitality sectors.

"Chinese visitors account for roughly 25% of Japan's international visitors, making department stores, high-end shopping, and tourism services especially at risk."

GDP Decline Breakdown

Japanese GDP fell by 0.4% in the July-September quarter, as manufacturers' exports were hit by duties imposed by the United States this year.

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

Earlier this year, the US administration had threatened Japan with a new 25% tariff on its products, which was later lowered to 15 percent when the two nations concluded a trade deal.

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

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

"Japan's economy was solid in the initial six months of this year and today's GDP data showed that growth is halted for now.

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

The White House has lately recognized the effect of tariffs on US consumers, reducing duties on food imports including beef, tomatoes, beverages and bananas amid growing concerns about rising costs.

Economic Calendar

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