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The Japanese economic system has experienced a contraction for the first time in six quarters, largely caused by declining overseas shipments due to recent US trade duties.

G7 Growth Rankings

Japan stands as the initial G7 nation to announce an economic contraction in the most recent three-month period.

As the US yet to publish its gross domestic product data for Q3 2025, the present G7 economic standings show:

• France: 0.5 percent expansion
• United Kingdom: 0.1 percent
• Canada: +0.1% (provisional estimate)
• Germany: zero growth
• Italian economy: no growth
• Japanese economy: negative 0.4 percent

Tourism Stocks Decline during Diplomatic Dispute with Beijing

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

Stocks in Japan's tourism and consumer companies have declined sharply after China advised its nationals to avoid visiting to Japan.

This move by Beijing escalated a diplomatic feud that was triggered by statements from Japan's new prime minister about the possibility of sending forces in the case of a hypothetical Chinese attack on Taiwan.

The development caused a wave of selling across Japan's tourism-related shares.

• Oriental Land shares 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 discouraging visits to Japan creates near-term difficulties for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and hospitality particularly vulnerable."

GDP Decline Details

Japanese gross domestic product dropped by 0.4 percent in the July-September quarter, as manufacturers' exports were hit by tariffs levied by the United States this year.

Overseas shipments were a primary driver of the decline, falling by 1.2 percent compared with the April-June quarter, and were 4.5% lower than a year ago.

Previously, the US administration had proposed Japan with a new 25 percent tariff on its products, which was later lowered to 15% when the two nations reached a trade deal.

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

On an annual basis, Japan's GDP contracted by 1.8% in the three months through September.

"The Japanese economic situation was stable in the initial six months of this year and today's GDP data showed that growth is halted temporarily.

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

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

Business Calendar

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