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Japan's economy has experienced a contraction for the initial time in a year and a half, primarily driven by declining exports because of newly imposed American tariffs.

G7 Economic Leaderboard

The Japanese economy has become the first G7 nation to report an output shrinkage in the latest three-month period.

With the US still needing to publish its GDP figures for Q3 2025, the current Group of Seven economic rankings display:

• France: 0.5 percent quarterly growth
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (provisional estimate)
• Germany: 0%
• Italian economy: no growth
• Japan: -0.4%

Tourism Shares Decline during Diplomatic Rift with Beijing

In addition to the GDP decline, Japan is dealing with an growing diplomatic dispute with China concerning Taiwan.

Shares in Japanese travel and consumer firms have declined significantly after China recommended its residents to avoid visiting to Japan.

This decision by Chinese authorities escalated a diplomatic feud that was sparked by comments from Japan's recently appointed prime minister about the possibility of deploying forces in the case of a hypothetical Chinese invasion on Taiwan.

The situation caused a wave of selling across Japanese leisure stocks.

• Oriental Land stock dropped by 5.7%
• Isetan Mitsukoshi plummeted by 11.3%
• Japan Airlines fell by 3.75 percent

"The ongoing dispute over Taiwan and China's travel warning advising against visits to Japan introduces short-term headwinds for retail and hospitality sectors.

"Chinese visitors account for roughly 25 percent of Japan's international visitors, making department stores, luxury retail, and hospitality especially at risk."

GDP Decline Details

Japan's GDP declined by 0.4 percent in the third quarter, as industrial overseas shipments were affected by tariffs levied by the United States this year.

Exports were a key driver of the contraction, dropping by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.

Previously, the US administration had proposed Japan with a additional 25% tariff on its goods, which was later reduced to 15 percent when the two nations concluded a trade agreement.

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

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

"Japan's economy was solid in the initial six months of this year and the latest GDP data showed that momentum is paused temporarily.

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

The US administration has recently recognized the impact of tariffs on US consumers, reducing duties on food imports including beef, produce, coffee and bananas amid growing concerns about increasing costs.

Business Agenda

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