Japan's Economy Contracts while Exports Are Hit by US Trade Duties
The Japanese economic system has recorded a drop for the initial time in six quarters, primarily caused by falling overseas shipments due to recent US tariffs.
G7 Growth Standings
Japan stands as the initial G7 country to announce an GDP decline in the previous quarter.
As the United States still needing to publish its GDP data for Q3 2025, the current G7 growth leaderboard display:
- The French economy: +0.5% quarterly growth
- UK: +0.1%
- Canada: +0.1% (preliminary figure)
- German economy: 0%
- Italy: 0%
- Japanese economy: negative 0.4 percent
Tourism Stocks Slump amid Diplomatic Rift with China
Alongside the GDP decline, Japan is dealing with an escalating political tension with China regarding Taiwan.
Stocks in Japan's travel and consumer businesses have declined sharply after China advised its nationals to refrain from traveling to Japan.
This decision by Beijing intensified a diplomatic feud that was sparked by comments from Tokyo's new PM about the potential of deploying forces in the event of a hypothetical Chinese invasion on Taiwan.
The development caused a surge of sell-offs across Japan's tourism-related stocks.
- The Tokyo Disneyland operator shares fell by 5.7 percent
- The department store chain tumbled by 11.3 percent
- The national carrier fell by 3.75 percent
"The China-Japan dispute over Taiwan and Beijing's travel warning advising against visits to Japan brings short-term difficulties for retail and hospitality sectors.
"Chinese visitors account for roughly 25% of Japan's inbound traffic, making department stores, luxury retail, and tourism services particularly vulnerable."
GDP Contraction Breakdown
Japan's GDP fell by 0.4% in the July-September quarter, as industrial exports were hit by tariffs levied by the US recently.
Overseas shipments were a primary driver of the contraction, dropping by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a year ago.
Previously, the American government had threatened Japan with a new 25% 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 annual basis, Japan's GDP shrank by 1.8 percent in the three months through September.
"Japan's economy was solid in the initial six months of this year and today's GDP data showed that momentum is halted for now.
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 Americans, lowering duties on imported food products including beef, tomatoes, coffee and bananas amid increasing concerns about increasing costs.
Business Calendar
- 8am GMT: Switzerland GDP report for Q3
- 3pm GMT: US construction spending data for August
