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Japan's economy has experienced a drop for the initial time in six quarters, largely caused by weakening overseas shipments due to newly imposed US tariffs.

Group of Seven Growth Standings

The Japanese economy stands as the initial G7 economy to disclose an GDP decline in the most recent three-month period.

With the US yet to release its gross domestic product data for Q3 2025, the present Group of Seven economic standings show:

• The French economy: +0.5% expansion
• United Kingdom: +0.1%
• Canadian economy: 0.1 percent (provisional estimate)
• Germany: 0%
• Italy: no growth
• Japanese economy: -0.4%

Tourism Stocks Decline amid Political Dispute with Beijing

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

Stocks in Japan's tourism and retail businesses have declined sharply after China urged its residents to refrain from traveling to Japan.

This action by Chinese authorities intensified a diplomatic feud that was triggered by comments from Japan's new prime minister about the potential of deploying forces in the case of a hypothetical Chinese attack on Taiwan.

The situation triggered a surge of selling across Japanese leisure shares.

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

"The China-Japan tension over Taiwan and Beijing's travel warning discouraging travel to Japan introduces short-term headwinds for retail and hospitality sectors.

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

GDP Decline Breakdown

Japanese GDP dropped by 0.4% in the third quarter, as industrial exports were affected by duties imposed by the US this year.

Exports were a major factor of the decline, dropping by 1.2 percent compared with the previous 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 percent tariff on its products, which was later lowered to 15% when the two nations concluded a trade agreement.

Consumer spending also fell, by 0.3 percent quarter-on-quarter.

On an annualized basis, Japan's GDP shrank by 1.8% in the quarter through September.

"The Japanese economic situation was solid in the initial six months of this year and the latest GDP figures showed that growth is halted for now.

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

The White House has lately recognized the impact of tariffs on US consumers, lowering tariffs on food imports including meat, tomatoes, coffee and fruits amid growing concerns about increasing costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August