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The Japanese economic system has experienced a contraction for the initial time in a year and a half, mainly caused by falling exports as a result of recent US trade duties.

G7 Growth Rankings

Japan has become the initial G7 economy to announce an output shrinkage in the previous quarter.

With the US still needing to release its GDP data for Q3 2025, the current G7 growth standings show:

• France: +0.5% expansion
• United Kingdom: +0.1%
• Canadian economy: +0.1% (provisional estimate)
• German economy: 0%
• Italian economy: no growth
• Japanese economy: negative 0.4 percent

Tourism Stocks Slump amid Diplomatic Dispute with China

Alongside the GDP decline, Japan is dealing with an intensifying diplomatic conflict with China concerning Taiwan.

Stocks in Japanese tourism and retail firms have fallen noticeably after China advised its residents to avoid traveling to Japan.

This action by Chinese authorities intensified a diplomatic feud that was triggered by comments from Tokyo's recently appointed prime minister about the potential of sending forces in the case of a hypothetical Chinese attack on Taiwan.

The situation caused a wave of selling across Japanese tourism-related shares.

• Oriental Land stock fell by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3 percent
• Japan Airlines fell by 3.75 percent

"The ongoing tension over Taiwan and China's travel warning discouraging travel to Japan creates short-term difficulties for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and tourism services particularly vulnerable."

Economic Contraction Breakdown

Japan's GDP declined by 0.4% in the third quarter, as manufacturers' exports were impacted by duties imposed by the United States this year.

Overseas shipments were a key driver of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5% lower than a year ago.

Previously, the US administration had threatened Japan with a additional 25 percent tariff on its products, which was later reduced to 15 percent when the two countries reached a trade deal.

Private demand also fell, by 0.3% compared to the previous 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 stable in the first half of this year and today's GDP figures showed that growth 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 US consumers, reducing tariffs on imported food products including meat, produce, coffee and bananas amid growing concerns about rising costs.

Economic Calendar

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