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

G7 Economic Standings

Japan stands as the first G7 country to report an economic contraction in the latest three-month period.

With the US still needing to publish its gross domestic product figures for Q3 2025, the present G7 growth leaderboard show:

• The French economy: +0.5% expansion
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (provisional estimate)
• Germany: 0%
• Italy: no growth
• Japan: -0.4%

Tourism Stocks Slump during Diplomatic Dispute with Beijing

In addition to the economic contraction, Japan is experiencing an escalating political conflict with China concerning Taiwan.

Stocks in Japanese travel and consumer companies have fallen significantly after China urged its residents to avoid visiting to Japan.

This decision by Chinese authorities escalated a political dispute that was triggered by remarks from Japan's new prime minister about the potential of sending troops in the case of a hypothetical Chinese attack on Taiwan.

The development triggered a wave of selling across Japan's tourism-related stocks.

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

"The China-Japan tension over Taiwan and China's travel warning discouraging visits to Japan creates near-term headwinds for consumer-facing sectors.

"Tourists from China represent roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services particularly vulnerable."

Economic Decline Breakdown

Japanese GDP dropped by 0.4% in the third quarter, as industrial exports were impacted by tariffs imposed by the US this year.

Exports were a key factor of the contraction, falling by 1.2% compared with the April-June quarter, and were 4.5% lower than a year ago.

Earlier this year, the American government had proposed Japan with a additional 25% tariff on its products, which was later reduced to 15% when the two countries reached a trade agreement.

Consumer spending also declined, 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.

"Japan's economy was solid in the initial six months of this year and the latest GDP figures showed that growth is halted temporarily.

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

The White House has lately recognized the impact of tariffs on US consumers, lowering tariffs on imported food products including meat, tomatoes, beverages and bananas amid increasing concerns about rising costs.

Economic Calendar

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