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Japan's economy has experienced a drop for the initial time in six quarters, mainly caused by falling exports due to recent US tariffs.

G7 Economic Rankings

Japan stands as the initial G7 nation to report an output shrinkage in the latest three-month period.

As the United States yet to publish its GDP figures for Q3 2025, the present Group of Seven growth standings indicate:

• France: 0.5 percent quarterly growth
• UK: 0.1 percent
• Canada: 0.1 percent (preliminary figure)
• German economy: 0%
• Italy: no growth
• Japan: negative 0.4 percent

Tourism Stocks Decline during Political Rift with Beijing

Alongside the economic contraction, Japan is dealing with an growing diplomatic conflict with China regarding Taiwan.

Stocks in Japanese travel and consumer businesses have fallen noticeably after China advised its nationals to avoid visiting to Japan.

This decision by Beijing heightened a political dispute that was triggered by remarks from Japan's new prime minister about the possibility of sending troops in the case of a hypothetical Chinese attack on Taiwan.

The development caused a wave of selling across Japanese tourism-related shares.

• The Tokyo Disneyland operator shares dropped by 5.7%
• The department store chain tumbled by 11.3%
• The national carrier declined by 3.75%

"The China-Japan dispute over Taiwan and China's advisory discouraging visits to Japan creates near-term headwinds for retail and hospitality sectors.

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

Economic Contraction Details

Japanese gross domestic product fell by 0.4 percent in the July-September quarter, as manufacturers' exports were impacted by tariffs imposed by the United States recently.

Overseas shipments were a key driver of the contraction, dropping by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a year ago.

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

Private demand also fell, by 0.3% 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 the latest GDP data showed that growth is halted temporarily.

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

The US administration has lately acknowledged the impact of tariffs on Americans, lowering tariffs on food imports including meat, produce, beverages and fruits amid growing concerns about rising costs.

Economic Agenda

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