🔗 Share this article

The Japanese economic system has shown a decline for the first time in a year and a half, primarily driven by weakening exports as a result of recent American trade duties.

Group of Seven Growth Leaderboard

Japan stands as the initial Group of Seven economy to report an economic contraction in the most recent quarter.

As the United States yet to publish its gross domestic product figures for Q3 2025, the present G7 economic rankings show:

• France: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canada: +0.1% (provisional estimate)
• German economy: 0%
• Italian economy: 0%
• Japan: negative 0.4 percent

Travel Stocks Slump during Diplomatic Dispute with Beijing

Alongside the economic contraction, Japan is dealing with an escalating diplomatic conflict with China regarding Taiwan.

Shares in Japan's tourism and retail firms have dropped noticeably after China recommended its nationals to avoid traveling to Japan.

This action by Beijing escalated a political dispute that was initiated by comments from Japan's recently appointed prime minister about the possibility of sending forces in the event of a potential Chinese attack on Taiwan.

The development caused a surge of sell-offs across Japan's tourism-related shares.

• The Tokyo Disneyland operator shares fell by 5.7%
• The department store chain tumbled by 11.3%
• Japan Airlines fell by 3.75%

"The China-Japan dispute over Taiwan and Beijing's travel warning discouraging travel to Japan introduces short-term difficulties for consumer-facing sectors.

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

Economic Contraction Details

Japanese gross domestic product dropped by 0.4% in the July-September quarter, as industrial overseas shipments were impacted by tariffs imposed by the US this year.

Overseas shipments were a key factor of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5% lower than a the same period last year.

Earlier this year, the American government had proposed Japan with a additional 25% tariff on its products, which was later lowered to 15% when the two nations concluded a trade deal.

Consumer spending also fell, by 0.3 percent compared to the previous quarter.

On an annualized basis, Japan's real gross domestic product shrank by 1.8% in the three months through September.

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

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

The US administration has lately acknowledged the impact of tariffs on US consumers, lowering tariffs on imported food products including meat, tomatoes, beverages and bananas amid growing concerns about rising costs.

Business Agenda

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