The Japanese Economic Output Contracts while Exports Face Impact by American Trade Duties

Japan's economy has experienced a contraction for the first time in a year and a half, largely caused by weakening exports because of recent American tariffs.

G7 Growth Leaderboard

The Japanese economy has become the initial G7 nation to disclose an GDP decline in the most recent quarter.

With the US still needing to publish its gross domestic product figures for Q3 2025, the current Group of Seven growth rankings display:

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

Travel Shares Slump amid Diplomatic Rift with China

In addition to the economic contraction, Japan is experiencing an escalating political dispute with China regarding Taiwan.

Stocks in Japanese travel and consumer companies have declined noticeably after China urged its citizens to refrain from visiting to Japan.

This action by Beijing escalated a diplomatic feud that was initiated by remarks from Tokyo's recently appointed prime minister about the possibility of sending troops in the case of a potential Chinese attack on Taiwan.

The situation triggered a surge of selling across Japanese leisure stocks.

• Oriental Land shares dropped by 5.7 percent
• The department store chain plummeted by 11.3%
• Japan Airlines declined by 3.75 percent

"The ongoing dispute over Taiwan and Beijing's travel warning advising against travel to Japan creates near-term challenges for retail and hospitality sectors.

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

Economic Contraction Details

Japanese GDP fell by 0.4% in the July-September quarter, as industrial overseas shipments were impacted by tariffs imposed by the US this year.

Overseas shipments were a major driver of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

Previously, the American government had proposed Japan with a additional 25 percent tariff on its goods, which was later lowered to 15% when the two countries concluded a trade deal.

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

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

"The Japanese economic situation was stable in the initial six months of this year and the latest GDP data showed that growth is halted temporarily.

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

The White House has lately acknowledged the impact of tariffs on US consumers, reducing duties on food imports including beef, produce, coffee and bananas amid increasing concerns about rising costs.

Business Calendar

• 8am GMT: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August