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The Japanese economic system has shown a contraction for the initial time in a year and a half, primarily driven by weakening overseas shipments due to recent American tariffs.

G7 Economic Rankings

Japan stands as the first G7 nation to announce an GDP decline in the latest quarter.

With the US still needing to publish its gross domestic product data for Q3 2025, the current G7 economic leaderboard display:

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

Travel Stocks Decline during Political Rift with Beijing

In addition to the GDP decline, Japan is facing an intensifying diplomatic conflict with China regarding Taiwan.

Stocks in Japanese travel and consumer companies have declined noticeably after China advised its citizens to refrain from traveling to Japan.

This decision by Beijing escalated a diplomatic feud that was triggered by remarks from Tokyo's new prime minister about the potential of sending troops in the event of a hypothetical Chinese invasion on Taiwan.

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

• Oriental Land stock fell by 5.7%
• The department store chain tumbled by 11.3%
• The national carrier fell by 3.75 percent

"The ongoing tension over Taiwan and Beijing's advisory discouraging travel to Japan brings short-term challenges for retail and hospitality sectors.

"Chinese visitors represent roughly 25% of Japan's international visitors, making retail outlets, luxury retail, and tourism services particularly vulnerable."

GDP Decline Breakdown

Japan's gross domestic product dropped by 0.4 percent in the July-September quarter, as industrial exports were impacted by tariffs imposed by the United States recently.

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

Earlier this year, the American government had proposed Japan with a new 25 percent tariff on its goods, which was later lowered to 15% when the two nations concluded a trade agreement.

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

On an annualized basis, Japan's GDP shrank by 1.8 percent in the quarter through September.

"Japan's economy was strong in the first half of this year and the latest GDP data showed that growth is paused temporarily.

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

The US administration has lately recognized the effect of tariffs on Americans, reducing tariffs on food imports including meat, produce, beverages and fruits amid growing concerns about increasing costs.

Economic Agenda

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