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Japan's economy has experienced a contraction for the initial time in a year and a half, mainly caused by declining overseas shipments because of newly imposed American trade duties.

Group of Seven Economic Rankings

Japan has become the first G7 economy to disclose an economic contraction in the latest three-month period.

As the US still needing to release its gross domestic product figures for Q3 2025, the present Group of Seven economic rankings display:

• The French economy: 0.5 percent expansion
• UK: +0.1%
• Canada: +0.1% (provisional estimate)
• German economy: zero growth
• Italy: no growth
• Japan: -0.4%

Tourism Shares Decline amid Diplomatic Dispute with China

Alongside the GDP decline, Japan is facing an intensifying political conflict with China regarding Taiwan.

Shares in Japan's travel and consumer companies have dropped significantly after China recommended its nationals to refrain from visiting to Japan.

This action by Beijing intensified a diplomatic feud that was initiated by comments from Tokyo's new prime minister about the potential of deploying troops in the event of a hypothetical Chinese invasion on Taiwan.

The situation triggered a wave of sell-offs across Japanese leisure shares.

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

"The ongoing tension over Taiwan and Beijing's travel warning discouraging visits to Japan creates short-term headwinds for retail and hospitality sectors.

"Tourists from China account for roughly 25% of Japan's international visitors, making retail outlets, luxury retail, and tourism services particularly vulnerable."

GDP Contraction Details

Japan's gross domestic product dropped by 0.4% in the July-September quarter, as industrial overseas shipments were impacted by tariffs imposed by the United States this year.

Overseas shipments were a key driver of the decline, dropping by 1.2% compared with the previous quarter, and were 4.5% lower than a the same period last year.

Earlier this year, the US administration had proposed Japan with a additional 25 percent tariff on its products, which was later reduced to 15% when the two countries concluded a trade deal.

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

On an annualized basis, Japan's real gross domestic product contracted by 1.8% in the quarter through September.

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

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

The White House has recently acknowledged the impact of tariffs on US consumers, reducing tariffs on imported food products including meat, tomatoes, beverages and bananas amid increasing concerns about increasing costs.

Business Calendar

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