Japan's Economy Contracts while Exports Face Impact by US Tariffs
Japan's economy has shown a drop for the initial time in a year and a half, largely caused by falling exports due to newly imposed American tariffs.
G7 Economic Leaderboard
Japan has become the first Group of Seven nation to disclose an GDP decline in the previous quarter.
As the United States still needing to release its GDP figures for Q3 2025, the present Group of Seven economic standings display:
- The French economy: +0.5% expansion
- United Kingdom: 0.1 percent
- Canada: 0.1 percent (preliminary figure)
- Germany: 0%
- Italian economy: 0%
- Japanese economy: negative 0.4 percent
Tourism Stocks Slump amid Political Rift with China
Alongside the economic contraction, Japan is dealing with an growing political conflict with China regarding Taiwan.
Stocks in Japanese travel and consumer businesses have declined sharply after China recommended its residents to avoid traveling to Japan.
This action by Chinese authorities escalated a diplomatic feud that was initiated by statements from Japan's new PM about the possibility of deploying forces in the event of a potential Chinese invasion on Taiwan.
The development led to a wave of sell-offs across Japanese leisure shares.
- Oriental Land stock dropped by 5.7 percent
- Isetan Mitsukoshi tumbled by 11.3%
- The national carrier declined by 3.75 percent
"The China-Japan tension over Taiwan and China's advisory advising against travel to Japan creates near-term challenges for consumer-facing sectors.
"Chinese visitors represent roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services particularly vulnerable."
Economic Contraction Details
Japanese gross domestic product declined by 0.4% in the third quarter, as industrial overseas shipments were impacted by duties levied by the US this year.
Overseas shipments were a major driver of the contraction, falling by 1.2 percent compared with the previous quarter, and were 4.5% lower than a the same period last year.
Previously, the American government had proposed Japan with a additional 25 percent tariff on its products, which was later lowered to 15% when the two countries concluded a trade agreement.
Consumer spending also declined, by 0.3% compared to the previous quarter.
On an annualized basis, Japan's real gross domestic product shrank by 1.8 percent in the three months through September.
"Japan's economy was solid in the initial six months of this year and the latest GDP data showed that momentum is paused for now.
I anticipate Japan's economy to be returning on a moderate growth trend going forward."
The White House has lately acknowledged the effect of tariffs on Americans, lowering tariffs on imported food products including beef, tomatoes, coffee and bananas amid growing concerns about rising costs.
Business Agenda
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
