🔗 Share this article

Japan's economy has recorded a contraction for the initial time in six quarters, largely driven by weakening overseas shipments as a result of recent US trade duties.

Group of Seven Economic Rankings

Japan has become the first G7 country to disclose an economic contraction in the previous quarter.

With the United States still needing to release its gross domestic product figures for Q3 2025, the current Group of Seven growth rankings indicate:

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

Tourism Stocks Decline during Diplomatic Dispute with China

Alongside the GDP decline, Japan is dealing with an growing diplomatic tension with China regarding Taiwan.

Shares in Japan's tourism and consumer businesses have dropped noticeably after China urged its nationals to avoid traveling to Japan.

This move by Chinese authorities escalated a political dispute that was triggered by remarks from Tokyo's new prime minister about the potential of deploying forces in the event of a hypothetical Chinese attack on Taiwan.

The development triggered a surge of selling across Japanese tourism-related stocks.

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

"The ongoing tension over Taiwan and China's advisory discouraging visits to Japan brings near-term headwinds for consumer-facing sectors.

"Chinese visitors account for roughly 25 percent of Japan's inbound traffic, making department stores, luxury retail, and hospitality particularly vulnerable."

GDP Contraction Breakdown

Japanese GDP fell by 0.4 percent in the third quarter, as industrial exports were impacted by duties imposed by the United States recently.

Exports 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 year ago.

Previously, the US administration had threatened Japan with a additional 25% tariff on its goods, which was later lowered to 15% when the two nations concluded a trade deal.

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

On an annualized basis, Japan's GDP shrank by 1.8 percent in the three months through September.

"Japan's economy was strong in the initial six months of this year and today's GDP figures showed that growth is paused temporarily.

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

The White House has lately recognized the effect of tariffs on US consumers, reducing duties on imported food products including meat, produce, coffee and fruits amid increasing concerns about rising costs.

Business Agenda

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