🔗 Share this article

Japan's economy has experienced a decline for the first time in six quarters, mainly driven by weakening exports because of recent US trade duties.

Group of Seven Growth Standings

Japan stands as the first Group of Seven nation to announce an economic contraction in the latest quarter.

As the United States still needing to release its gross domestic product figures for Q3 2025, the present Group of Seven economic standings show:

• The French economy: +0.5% expansion
• UK: 0.1 percent
• Canada: +0.1% (provisional estimate)
• Germany: zero growth
• Italy: no growth
• Japanese economy: negative 0.4 percent

Tourism Stocks Decline during Political Rift with Beijing

Alongside the GDP decline, Japan is facing an intensifying diplomatic dispute with China regarding Taiwan.

Shares in Japan's tourism and retail companies have dropped noticeably after China urged its nationals to refrain from visiting to Japan.

This decision by Chinese authorities heightened a diplomatic feud that was initiated by remarks from Japan's new PM about the possibility of sending forces in the event of a potential Chinese invasion on Taiwan.

The development triggered a surge of selling across Japan's leisure stocks.

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

"The China-Japan dispute over Taiwan and China's advisory advising against travel to Japan creates short-term challenges for retail and hospitality sectors.

"Tourists from China account for roughly 25% of Japan's inbound traffic, making department stores, luxury retail, and hospitality particularly at risk."

GDP Decline Breakdown

Japan's gross domestic product dropped by 0.4% in the July-September quarter, as manufacturers' overseas shipments were impacted by duties levied by the United States recently.

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

Earlier this year, the US administration had proposed Japan with a additional 25% tariff on its goods, which was later lowered to 15% when the two countries concluded a trade agreement.

Consumer spending also declined, by 0.3 percent compared to the previous quarter.

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

"Japan's economy was stable in the first half of this year and the latest GDP figures showed that momentum is halted temporarily.

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

The White House has recently recognized the effect of tariffs on US consumers, reducing duties on food imports including meat, produce, coffee and bananas amid growing concerns about increasing costs.

Business Agenda

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