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Japan's economy has shown a drop for the initial time in six quarters, largely caused by falling overseas shipments as a result of newly imposed US tariffs.

Group of Seven Growth Leaderboard

Japan has become the initial G7 economy to announce an output shrinkage in the most recent quarter.

With the United States yet to publish its gross domestic product data for Q3 2025, the current Group of Seven economic standings display:

• The French economy: +0.5% quarterly growth
• UK: 0.1 percent
• Canada: 0.1 percent (preliminary figure)
• Germany: zero growth
• Italy: no growth
• Japanese economy: -0.4%

Tourism Stocks Decline amid Diplomatic Rift with China

Alongside the GDP decline, Japan is facing an escalating political dispute with China regarding Taiwan.

Stocks in Japan's tourism and retail companies have fallen significantly after China advised its citizens to refrain from visiting to Japan.

This decision by Chinese authorities escalated a political dispute that was initiated by comments from Japan's recently appointed prime minister about the potential of sending troops in the event of a hypothetical Chinese attack on Taiwan.

The situation triggered a surge of selling across Japanese tourism-related stocks.

• The Tokyo Disneyland operator shares fell by 5.7 percent
• The department store chain tumbled by 11.3%
• The national carrier fell by 3.75%

"The ongoing dispute over Taiwan and Beijing's travel warning advising against travel to Japan brings near-term difficulties for retail and hospitality sectors.

"Chinese visitors represent roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and hospitality particularly at risk."

Economic Contraction Breakdown

Japan's gross domestic product declined by 0.4% in the July-September quarter, as manufacturers' overseas shipments were hit by duties levied by the US recently.

Exports were a key factor of the contraction, dropping by 1.2 percent compared with the April-June 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 reduced to 15 percent when the two nations reached a trade deal.

Consumer spending also fell, by 0.3 percent quarter-on-quarter.

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

"Japan's economy was strong in the first half of this year and the latest GDP data showed that momentum is halted for now.

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

The US administration has recently recognized the effect of tariffs on US consumers, reducing tariffs on food imports including beef, produce, beverages and bananas amid increasing concerns about rising costs.

Economic Calendar

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