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Japan's economy has recorded a contraction for the first time in a year and a half, mainly caused by falling overseas shipments as a result of newly imposed American trade duties.

G7 Growth Rankings

The Japanese economy has become the first G7 country to announce an economic contraction in the most recent three-month period.

As the United States still needing to release its gross domestic product figures for Q3 2025, the present Group of Seven growth leaderboard indicate:

• The French economy: +0.5% expansion
• United Kingdom: 0.1 percent
• Canada: +0.1% (provisional estimate)
• German economy: 0%
• Italy: 0%
• Japanese economy: -0.4%

Tourism Stocks Slump amid Diplomatic Rift with Beijing

In addition to the economic contraction, Japan is experiencing an intensifying political tension with China regarding Taiwan.

Shares in Japan's tourism and consumer firms have fallen sharply after China urged its residents to avoid traveling to Japan.

This action by Chinese authorities intensified a diplomatic feud that was initiated by remarks from Tokyo's recently appointed PM about the possibility of sending forces in the event of a potential Chinese invasion on Taiwan.

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

• Oriental Land stock fell by 5.7%
• Isetan Mitsukoshi plummeted by 11.3 percent
• The national carrier fell by 3.75%

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

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

GDP Decline Breakdown

Japan's GDP declined by 0.4 percent in the July-September quarter, as manufacturers' exports were affected by duties levied by the US this year.

Exports were a primary factor of the contraction, dropping by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.

Previously, the American government had proposed Japan with a new 25 percent tariff on its products, which was later reduced to 15 percent when the two nations reached a trade deal.

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

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

"Japan's economy was stable in the initial six months of this year and today's GDP data showed that momentum is paused temporarily.

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

The US administration has recently acknowledged the effect of tariffs on Americans, reducing duties on food imports including beef, tomatoes, coffee and fruits amid increasing concerns about rising costs.

Business Agenda

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