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The Japanese economic system has recorded a contraction for the first time in six quarters, primarily caused by falling exports as a result of recent US trade duties.

Group of Seven Growth Leaderboard

The Japanese economy has become the first Group of Seven economy to announce an output shrinkage in the latest three-month period.

With the United States yet to publish its gross domestic product data for Q3 2025, the present G7 growth rankings show:

• France: +0.5% expansion
• UK: 0.1 percent
• Canada: +0.1% (preliminary figure)
• Germany: zero growth
• Italian economy: 0%
• Japanese economy: negative 0.4 percent

Travel Stocks Slump during Diplomatic Rift with China

Alongside the GDP decline, Japan is experiencing an growing diplomatic dispute with China regarding Taiwan.

Stocks in Japanese tourism and retail companies have dropped sharply after China recommended its residents to refrain from visiting to Japan.

This decision by Beijing escalated a political dispute that was triggered by remarks from Tokyo's new prime minister about the possibility of sending troops in the event of a potential Chinese attack on Taiwan.

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

• The Tokyo Disneyland operator shares dropped by 5.7%
• Isetan Mitsukoshi plummeted by 11.3 percent
• Japan Airlines declined by 3.75 percent

"The China-Japan dispute over Taiwan and China's travel warning advising against travel to Japan creates near-term difficulties for consumer-facing sectors.

"Chinese visitors account for roughly 25% of Japan's international visitors, making department stores, luxury retail, and tourism services particularly at risk."

GDP Contraction Details

Japan's gross domestic product fell by 0.4 percent in the third quarter, as manufacturers' exports were hit by duties levied by the US this year.

Exports were a key factor of the decline, dropping by 1.2% compared with the previous quarter, and were 4.5% lower than a year ago.

Earlier this year, the American government had proposed Japan with a additional 25% tariff on its goods, which was later reduced to 15% when the two nations reached a trade deal.

Consumer spending also declined, by 0.3% quarter-on-quarter.

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

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

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

The US administration has lately recognized the effect of tariffs on Americans, reducing tariffs on food imports including meat, tomatoes, beverages and fruits amid growing concerns about rising costs.

Business Calendar

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August