The Japanese Economy Contracts while Exports Face Impact by US Tariffs
Japan's economy has recorded a decline for the first time in six quarters, largely caused by declining overseas shipments due to recent US trade duties.
G7 Growth Standings
The Japanese economy has become the first Group of Seven nation to announce an GDP decline in the previous three-month period.
As the US still needing to publish its GDP figures for Q3 2025, the current Group of Seven growth leaderboard display:
- France: +0.5% quarterly growth
- UK: +0.1%
- Canada: +0.1% (preliminary figure)
- Germany: 0%
- Italian economy: 0%
- Japanese economy: negative 0.4 percent
Tourism Stocks Slump amid Diplomatic Rift with China
In addition to the economic contraction, Japan is dealing with an escalating political tension with China concerning Taiwan.
Stocks in Japan's travel and consumer businesses have dropped sharply after China advised its citizens to avoid visiting to Japan.
This action by Beijing escalated a diplomatic feud that was sparked by remarks from Japan's new PM about the potential of deploying troops in the case of a hypothetical Chinese invasion on Taiwan.
The development led to a surge of sell-offs across Japanese leisure shares.
- The Tokyo Disneyland operator shares dropped by 5.7%
- The department store chain tumbled by 11.3 percent
- Japan Airlines declined by 3.75 percent
"The China-Japan dispute over Taiwan and Beijing's travel warning discouraging visits to Japan brings short-term difficulties for retail and hospitality sectors.
"Tourists from China account for roughly 25% of Japan's international visitors, making department stores, high-end shopping, and hospitality especially at risk."
GDP Contraction Details
Japan's gross domestic product dropped by 0.4 percent in the July-September quarter, as industrial overseas shipments were hit by tariffs imposed by the United States this year.
Exports were a primary driver of the contraction, falling by 1.2% compared with the April-June quarter, and were 4.5% lower than a year ago.
Previously, the US administration had proposed Japan with a additional 25% tariff on its products, which was later lowered to 15% when the two countries reached a trade agreement.
Private demand also fell, by 0.3% quarter-on-quarter.
On an annualized basis, Japan's real gross domestic product contracted by 1.8 percent in the quarter through September.
"The Japanese economic situation was stable in the first half of this year and today's GDP figures showed that growth is halted for now.
I expect Japan's economy to be back on a gradual recovery trend going forward."
The White House has recently recognized the effect of tariffs on Americans, lowering tariffs on food imports including meat, produce, coffee and bananas amid increasing concerns about rising costs.
Business Agenda
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 3pm GMT: US construction spending data for August
