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

Group of Seven Economic Rankings

The Japanese economy has become the initial G7 country to disclose an economic contraction in the most recent quarter.

With the US yet to release its GDP figures for Q3 2025, the present G7 economic rankings indicate:

• France: 0.5 percent expansion
• UK: +0.1%
• Canada: +0.1% (preliminary figure)
• German economy: zero growth
• Italian economy: 0%
• Japan: -0.4%

Travel Stocks Slump during Diplomatic Rift with Beijing

In addition to the economic contraction, Japan is dealing with an intensifying diplomatic dispute with China concerning Taiwan.

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

This decision by Chinese authorities intensified a political dispute that was triggered by comments from Japan's recently appointed prime minister about the possibility of deploying troops in the case of a potential Chinese attack on Taiwan.

The situation led to a surge of sell-offs across Japanese tourism-related stocks.

• The Tokyo Disneyland operator stock fell by 5.7%
• The department store chain tumbled by 11.3%
• Japan Airlines fell by 3.75%

"The China-Japan tension over Taiwan and China's travel warning discouraging visits to Japan brings near-term headwinds for retail and hospitality sectors.

"Tourists from China represent roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and hospitality particularly vulnerable."

Economic Decline Breakdown

Japanese GDP dropped by 0.4% in the July-September quarter, as industrial exports were hit by tariffs imposed by the US this year.

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 the same period last year.

Previously, the US administration had proposed Japan with a new 25 percent tariff on its products, which was later reduced to 15% when the two nations reached a trade agreement.

Private demand also fell, by 0.3 percent quarter-on-quarter.

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

"The Japanese economic situation was strong in the first half of this year and today's GDP data showed that momentum is halted temporarily.

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

The US administration has lately recognized the impact of tariffs on Americans, reducing tariffs on food imports including beef, produce, beverages and fruits amid increasing concerns about rising costs.

Business Agenda

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