🔗 Share this article

Japan's economy has experienced a decline for the initial time in a year and a half, primarily caused by weakening exports because of recent American tariffs.

G7 Growth Leaderboard

The Japanese economy has become the first Group of Seven nation to announce an output shrinkage in the previous three-month period.

With the United States yet to release its GDP data for the third quarter, the present G7 economic standings display:

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

Travel Shares Decline amid Political Dispute with China

In addition to the GDP decline, Japan is experiencing an escalating diplomatic tension with China regarding Taiwan.

Stocks in Japan's tourism and consumer firms have declined significantly after China urged its residents to avoid visiting to Japan.

This move by Chinese authorities intensified a diplomatic feud that was sparked by statements from Tokyo's new prime minister about the possibility of deploying forces in the event of a potential Chinese attack on Taiwan.

The development triggered a surge of selling across Japan's leisure stocks.

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

"The ongoing dispute over Taiwan and China's advisory advising against visits to Japan introduces near-term challenges for consumer-facing sectors.

"Chinese visitors represent roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services particularly at risk."

Economic Decline Breakdown

Japan's gross domestic product dropped by 0.4% in the third quarter, as manufacturers' exports were hit by duties levied by the United States this year.

Exports were a major driver of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a year ago.

Earlier this year, the US administration had threatened Japan with a additional 25 percent 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 quarter-on-quarter.

On an annualized basis, Japan's real gross domestic product shrank by 1.8 percent in the three months through September.

"The Japanese economic situation was strong in the first half of this year and today's GDP data showed that momentum is paused temporarily.

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

The White House has lately acknowledged the impact of tariffs on Americans, reducing duties on imported food products including beef, tomatoes, coffee and bananas amid increasing concerns about increasing costs.

Business Calendar

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