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Japan's economy has experienced a contraction for the initial time in six quarters, mainly driven by declining exports as a result of recent American tariffs.

G7 Growth Rankings

Japan has become the initial Group of Seven nation to report an output shrinkage in the most recent three-month period.

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

• The French economy: 0.5 percent quarterly growth
• United Kingdom: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• German economy: 0%
• Italian economy: 0%
• Japanese economy: negative 0.4 percent

Travel Stocks Decline amid Diplomatic Dispute with Beijing

Alongside the economic contraction, Japan is facing an escalating diplomatic tension with China regarding Taiwan.

Shares in Japan's tourism and retail businesses have fallen sharply after China recommended its nationals to avoid traveling to Japan.

This decision by Chinese authorities heightened a political dispute that was sparked by remarks from Tokyo's recently appointed PM about the possibility of deploying troops in the event of a hypothetical Chinese invasion on Taiwan.

The situation triggered a surge of selling across Japan's tourism-related stocks.

• Oriental Land stock dropped by 5.7%
• Isetan Mitsukoshi tumbled by 11.3%
• Japan Airlines declined by 3.75 percent

"The China-Japan dispute over Taiwan and Beijing's advisory discouraging travel to Japan introduces near-term difficulties for consumer-facing 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 GDP fell by 0.4 percent in the third quarter, as industrial overseas shipments were affected by duties imposed by the US this year.

Exports were a key factor of the contraction, dropping by 1.2 percent compared with the previous quarter, and were 4.5% lower than a the same period last year.

Previously, the US administration had threatened Japan with a new 25 percent tariff on its goods, which was later reduced to 15% when the two nations concluded a trade deal.

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

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

"Japan's economy was solid in the initial six months of this year and the latest GDP figures showed that growth is paused temporarily.

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

The White House has lately recognized the impact of tariffs on Americans, lowering duties on food imports including beef, produce, coffee and fruits amid increasing concerns about increasing costs.

Economic Agenda

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