🔗 Share this article

The Japanese economic system has shown a drop for the first time in a year and a half, mainly driven by weakening exports as a result of recent US trade duties.

Group of Seven Economic Standings

The Japanese economy has become the initial G7 country to report an GDP decline in the latest three-month period.

As the US still needing to publish its GDP figures for Q3 2025, the current G7 growth standings indicate:

• France: +0.5% expansion
• United Kingdom: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• Germany: zero growth
• Italy: no growth
• Japan: negative 0.4 percent

Travel Stocks Slump amid Diplomatic Rift with Beijing

In addition to the economic contraction, Japan is dealing with an growing diplomatic dispute with China regarding Taiwan.

Shares in Japan's tourism and consumer companies have fallen significantly after China advised its nationals to refrain from traveling to Japan.

This move by Chinese authorities escalated a diplomatic feud that was triggered by statements from Japan's new prime minister about the possibility of deploying troops in the case of a potential Chinese invasion on Taiwan.

The situation led to a surge of sell-offs across Japan's tourism-related stocks.

• The Tokyo Disneyland operator shares fell by 5.7%
• The department store chain tumbled by 11.3%
• Japan Airlines declined by 3.75 percent

"The ongoing dispute over Taiwan and China's advisory advising against visits to Japan creates near-term headwinds for retail and hospitality sectors.

"Chinese visitors account for roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services particularly at risk."

GDP Contraction Details

Japanese gross domestic product dropped by 0.4% in the third quarter, as industrial exports were hit by duties imposed by the US this year.

Overseas shipments were a key factor of the contraction, falling by 1.2 percent 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 new 25 percent tariff on its goods, which was later reduced to 15 percent when the two countries concluded a trade deal.

Private demand also fell, by 0.3 percent compared to the previous quarter.

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

"Japan's economy was strong in the first half of this year and the latest GDP figures showed that growth is paused for now.

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

The US administration has lately acknowledged the impact of tariffs on US consumers, lowering duties on imported food products including beef, tomatoes, beverages and fruits amid increasing concerns about rising costs.

Business Calendar

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