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The Japanese economic system has recorded a drop for the initial time in a year and a half, mainly driven by falling overseas shipments because of recent US tariffs.

G7 Growth Leaderboard

Japan stands as the first G7 country to disclose an output shrinkage in the previous three-month period.

As the United States still needing to publish its GDP figures for Q3 2025, the present G7 growth leaderboard display:

• France: +0.5% quarterly growth
• UK: +0.1%
• Canada: +0.1% (provisional estimate)
• German economy: 0%
• Italian economy: 0%
• Japanese economy: -0.4%

Travel Stocks Decline during Diplomatic Rift with China

In addition to the economic contraction, Japan is dealing with an intensifying diplomatic conflict with China concerning Taiwan.

Shares in Japanese travel and consumer firms have fallen significantly after China urged its nationals to refrain from traveling to Japan.

This action by Beijing escalated a diplomatic feud that was sparked by comments from Tokyo's new PM about the possibility of sending troops in the case of a potential Chinese invasion on Taiwan.

The situation led to a surge of sell-offs across Japanese tourism-related stocks.

• The Tokyo Disneyland operator stock dropped by 5.7 percent
• The department store chain tumbled by 11.3 percent
• The national carrier declined by 3.75%

"The China-Japan dispute over Taiwan and China's advisory discouraging travel to Japan creates near-term difficulties for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's inbound traffic, making department stores, luxury retail, and tourism services especially at risk."

Economic Decline Breakdown

Japan's gross domestic product declined by 0.4 percent in the third quarter, as industrial overseas shipments were impacted by tariffs imposed by the United States recently.

Exports were a primary driver of the contraction, dropping by 1.2 percent compared with the April-June quarter, and were 4.5% lower than a the same period last year.

Previously, the American government had threatened Japan with a additional 25 percent tariff on its goods, which was later lowered to 15 percent when the two nations concluded a trade agreement.

Private demand also declined, 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 stable in the first half of this year and today's GDP figures showed that growth is paused temporarily.

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

The White House has lately acknowledged the impact of tariffs on US consumers, lowering tariffs on imported food products including meat, produce, coffee and bananas amid growing concerns about rising costs.

Economic Calendar

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