🔗 Share this article

The Japanese economic system has shown a contraction for the initial time in a year and a half, mainly caused by falling exports due to newly imposed US tariffs.

G7 Economic Standings

Japan stands as the initial G7 nation to announce an economic contraction in the most recent quarter.

With the United States still needing to publish its GDP figures for the third quarter, the current G7 growth standings display:

• France: +0.5% expansion
• United Kingdom: 0.1 percent
• Canada: 0.1 percent (preliminary figure)
• Germany: zero growth
• Italy: no growth
• Japanese economy: negative 0.4 percent

Travel Shares Decline amid Diplomatic Rift with China

Alongside the economic contraction, Japan is dealing with an intensifying political dispute with China concerning Taiwan.

Stocks in Japanese travel and consumer companies have fallen significantly after China urged its citizens to avoid visiting to Japan.

This action by Chinese authorities escalated a diplomatic feud that was triggered by statements from Tokyo's recently appointed PM about the possibility of deploying forces in the event of a hypothetical Chinese attack on Taiwan.

The development led to a wave of sell-offs across Japan's tourism-related stocks.

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

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

"Chinese visitors represent roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services especially vulnerable."

Economic Decline Breakdown

Japanese GDP fell by 0.4% in the third quarter, as industrial overseas shipments were affected by duties imposed by the United States this year.

Exports were a primary factor of the decline, falling by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a year ago.

Earlier this year, the American government had proposed Japan with a new 25% tariff on its products, which was later lowered to 15 percent when the two nations reached a trade agreement.

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

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

"The Japanese economic situation was stable in the initial six months of this year and today's GDP figures showed that momentum is halted for now.

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

The White House has recently recognized the impact of tariffs on US consumers, reducing tariffs on food imports including beef, produce, beverages and fruits amid increasing concerns about increasing costs.

Economic Agenda

• 8am GMT: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August