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Japan's economy has recorded a decline for the first time in a year and a half, largely driven by declining exports due to newly imposed American trade duties.

Group of Seven Growth Standings

Japan has become the initial Group of Seven nation to disclose an economic contraction in the latest quarter.

As the United States yet to release its GDP data for Q3 2025, the present Group of Seven economic rankings indicate:

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

Travel Shares Decline amid Diplomatic Rift with Beijing

Alongside the economic contraction, Japan is experiencing an escalating political tension with China regarding Taiwan.

Stocks in Japanese travel and retail companies have dropped sharply after China recommended its nationals to refrain from traveling to Japan.

This action by Chinese authorities escalated a diplomatic feud that was triggered by comments from Japan's new prime minister about the potential of sending troops in the event of a hypothetical Chinese attack on Taiwan.

The development caused a wave of selling across Japan's tourism-related stocks.

• The Tokyo Disneyland operator shares fell by 5.7 percent
• The department store chain plummeted by 11.3%
• The national carrier declined by 3.75 percent

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

"Tourists from China represent roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and tourism services particularly at risk."

Economic Contraction Breakdown

Japanese gross domestic product fell by 0.4 percent in the July-September quarter, as manufacturers' exports were impacted by duties levied by the US recently.

Overseas shipments were a primary driver of the decline, dropping by 1.2 percent compared with the April-June quarter, and were 4.5% lower than a the same period last year.

Earlier this year, the American government had threatened Japan with a additional 25 percent tariff on its products, which was later lowered to 15 percent when the two countries concluded a trade deal.

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

On an annual basis, Japan's real gross domestic product contracted by 1.8% in the quarter through September.

"The Japanese economic situation was strong in the first half of this year and the latest GDP data showed that momentum is halted for now.

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

The White House has recently acknowledged the impact of tariffs on Americans, lowering duties on imported food products including meat, produce, coffee and bananas amid increasing concerns about rising costs.

Economic Agenda

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