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The Japanese economic system has recorded a drop for the first time in six quarters, largely driven by declining exports due to recent US trade duties.

Group of Seven Economic Leaderboard

The Japanese economy has become the first Group of Seven economy to report an output shrinkage in the previous quarter.

With the US yet to publish its GDP data for Q3 2025, the current G7 growth standings display:

• The French economy: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canada: +0.1% (provisional estimate)
• Germany: zero growth
• Italian economy: no growth
• Japanese economy: -0.4%

Tourism Stocks Decline amid Diplomatic Dispute with China

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

Shares in Japan's tourism and retail companies have declined sharply after China advised its citizens to avoid visiting to Japan.

This move by Chinese authorities intensified a diplomatic feud that was triggered by statements from Tokyo's new PM about the possibility of deploying forces in the event of a hypothetical Chinese invasion on Taiwan.

The situation led to a wave of selling across Japan's tourism-related shares.

• The Tokyo Disneyland operator stock dropped by 5.7%
• Isetan Mitsukoshi tumbled by 11.3 percent
• The national carrier fell by 3.75 percent

"The China-Japan tension over Taiwan and China's travel warning discouraging visits to Japan creates short-term headwinds for consumer-facing sectors.

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making retail outlets, high-end shopping, and hospitality especially at risk."

Economic Contraction Details

Japan's gross domestic product fell by 0.4% in the third quarter, as manufacturers' overseas shipments were hit by tariffs levied by the United States recently.

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

Earlier this year, the US administration had threatened Japan with a additional 25 percent tariff on its goods, which was later lowered to 15 percent when the two countries reached a trade deal.

Consumer spending also declined, by 0.3% compared to the previous quarter.

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

"The Japanese economic situation was solid in the initial six months of this year and the latest GDP figures showed that momentum is paused for now.

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

The US administration has recently recognized the effect of tariffs on Americans, lowering tariffs on imported food products including meat, produce, beverages and fruits amid increasing 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