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The Japanese economic system has experienced a contraction for the first time in a year and a half, mainly caused by declining overseas shipments because of recent American trade duties.

G7 Economic Leaderboard

Japan has become the first Group of Seven country to report an GDP decline in the most recent quarter.

As the US yet to publish its gross domestic product data for Q3 2025, the current G7 economic leaderboard indicate:

• France: +0.5% expansion
• UK: +0.1%
• Canada: 0.1 percent (provisional estimate)
• German economy: zero growth
• Italian economy: 0%
• Japan: negative 0.4 percent

Travel Stocks Decline amid Diplomatic Rift with China

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

Stocks in Japanese travel and retail firms have dropped significantly after China advised its citizens to avoid traveling to Japan.

This move by Chinese authorities escalated a political dispute that was initiated by remarks from Japan's new PM about the possibility of deploying forces in the event of a hypothetical Chinese attack on Taiwan.

The development triggered a wave of sell-offs across Japanese tourism-related stocks.

• Oriental Land shares fell by 5.7%
• The department store chain tumbled by 11.3%
• Japan Airlines fell by 3.75%

"The China-Japan tension over Taiwan and China's advisory advising against travel to Japan brings short-term difficulties for retail and hospitality sectors.

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

Economic Contraction Details

Japan's gross domestic product fell by 0.4 percent in the July-September quarter, as manufacturers' exports were impacted by duties levied by the US recently.

Overseas shipments were a key factor of the decline, dropping by 1.2% compared with the previous quarter, and were 4.5% lower than a year ago.

Previously, the US administration had threatened Japan with a new 25% tariff on its products, which was later lowered to 15 percent 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 GDP contracted by 1.8% in the quarter through September.

"The Japanese economic situation was strong in the initial six months of this year and the latest GDP figures showed that momentum is paused for now.

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

The White House has lately acknowledged the effect of tariffs on Americans, reducing duties on imported food products including beef, tomatoes, beverages and fruits amid increasing concerns about rising costs.

Business Calendar

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