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The Japanese economic system has recorded a drop for the initial time in six quarters, mainly caused by falling exports due to recent US trade duties.

Group of Seven Growth Standings

The Japanese economy has become the initial Group of Seven economy to announce an output shrinkage in the latest three-month period.

As the United States yet to publish its GDP data for Q3 2025, the current G7 growth leaderboard show:

• The French economy: 0.5 percent expansion
• UK: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• Germany: zero growth
• Italy: 0%
• Japan: -0.4%

Travel Stocks Slump during Diplomatic Rift with Beijing

In addition to the economic contraction, Japan is facing an escalating diplomatic tension with China regarding Taiwan.

Shares in Japan's travel and consumer firms have declined significantly after China advised its citizens to avoid traveling to Japan.

This decision by Chinese authorities heightened a diplomatic feud that was sparked by remarks from Japan's recently appointed PM about the possibility of deploying troops in the case of a potential Chinese attack on Taiwan.

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

• Oriental Land shares fell by 5.7%
• The department store chain plummeted by 11.3%
• Japan Airlines fell by 3.75%

"The China-Japan tension over Taiwan and Beijing's travel warning advising against travel to Japan brings near-term difficulties for retail and hospitality sectors.

"Tourists from China represent roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services especially at risk."

Economic Contraction Breakdown

Japanese GDP fell by 0.4% in the third quarter, as manufacturers' overseas shipments were affected by tariffs imposed by the United States this year.

Exports were a primary factor of the decline, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a year ago.

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

Private demand also declined, 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.

"The Japanese economic situation 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 back on a gradual growth trend going forward."

The US administration has recently acknowledged the impact of tariffs on US consumers, lowering tariffs on imported food products including meat, produce, coffee and bananas amid increasing concerns about rising costs.

Business Agenda

• 8am GMT: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August