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Japan's economy has experienced a contraction for the first time in a year and a half, primarily caused by declining exports due to recent American tariffs.

G7 Growth Standings

Japan has become the first Group of Seven country to disclose an GDP decline in the latest quarter.

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

• France: +0.5% expansion
• United Kingdom: +0.1%
• Canada: +0.1% (preliminary figure)
• German economy: 0%
• Italian economy: 0%
• Japan: -0.4%

Tourism Shares Decline amid Diplomatic Rift with Beijing

Alongside the GDP decline, Japan is facing an intensifying diplomatic dispute with China regarding Taiwan.

Stocks in Japan's tourism and retail companies have dropped noticeably after China recommended its residents to refrain from traveling to Japan.

This action by Beijing intensified a diplomatic feud that was initiated by comments from Japan's new prime minister about the possibility of sending troops in the case of a potential Chinese invasion on Taiwan.

The development caused a wave of sell-offs across Japanese leisure stocks.

• The Tokyo Disneyland operator shares fell by 5.7%
• Isetan Mitsukoshi tumbled by 11.3%
• The national carrier fell by 3.75 percent

"The ongoing tension over Taiwan and Beijing's advisory discouraging visits to Japan introduces near-term challenges for retail and hospitality sectors.

"Chinese visitors account for roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and tourism services particularly vulnerable."

Economic Contraction Details

Japanese gross domestic product declined by 0.4 percent in the third quarter, as industrial exports were hit by duties imposed by the United States recently.

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

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

Private demand also declined, by 0.3% quarter-on-quarter.

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

"The Japanese economic situation was strong in the first half of this year and the latest GDP data showed that growth is paused temporarily.

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

The White House has lately recognized the effect of tariffs on Americans, lowering duties on imported food products including beef, produce, beverages and fruits amid growing concerns about rising costs.

Economic Agenda

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