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

Group of Seven Economic Rankings

The Japanese economy has become the initial Group of Seven country to disclose an output shrinkage in the most recent quarter.

As the US yet to release its gross domestic product figures for Q3 2025, the present G7 growth rankings display:

• The French economy: 0.5 percent expansion
• UK: +0.1%
• Canadian economy: 0.1 percent (preliminary figure)
• German economy: zero growth
• Italian economy: 0%
• Japan: -0.4%

Travel Stocks Decline during Diplomatic Rift with China

Alongside the economic contraction, Japan is experiencing an growing diplomatic dispute with China regarding Taiwan.

Shares in Japanese tourism and retail companies have fallen noticeably after China recommended its nationals to avoid visiting to Japan.

This action by Chinese authorities heightened a diplomatic feud that was sparked by comments from Japan's new PM about the possibility of sending troops in the case of a hypothetical Chinese attack on Taiwan.

The development triggered a surge of sell-offs across Japan's leisure stocks.

• Oriental Land shares dropped by 5.7%
• The department store chain plummeted by 11.3%
• The national carrier fell by 3.75 percent

"The ongoing tension over Taiwan and Beijing's travel warning advising against visits to Japan creates short-term headwinds for retail and hospitality sectors.

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

Economic Decline Details

Japan's gross domestic product dropped by 0.4% in the third quarter, as industrial exports were affected by duties levied by the United States this year.

Overseas shipments were a primary factor of the contraction, 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 threatened Japan with a new 25% tariff on its products, which was later reduced to 15 percent when the two countries concluded a trade agreement.

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

On an annual basis, Japan's GDP contracted by 1.8 percent in the quarter through September.

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

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

The White House has lately recognized the impact of tariffs on Americans, lowering duties on imported food products including beef, produce, coffee and bananas amid growing concerns about increasing costs.

Business Agenda

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