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Japan's economy has recorded a decline for the initial time in a year and a half, largely driven by weakening exports due to newly imposed US trade duties.

Group of Seven Growth Leaderboard

The Japanese economy has become the first G7 economy to report an output shrinkage in the previous quarter.

As the United States yet to publish its GDP figures for Q3 2025, the present G7 growth standings show:

• France: 0.5 percent quarterly growth
• UK: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• Germany: zero growth
• Italian economy: no growth
• Japanese economy: -0.4%

Travel Shares Slump during Political Rift with Beijing

In addition to the economic contraction, Japan is facing an intensifying political dispute with China regarding Taiwan.

Shares in Japan's travel and consumer firms have declined noticeably after China advised its nationals to refrain from traveling to Japan.

This action by Chinese authorities escalated a diplomatic feud that was triggered by remarks from Tokyo's recently appointed PM about the potential of deploying troops in the case of a hypothetical Chinese invasion on Taiwan.

The development triggered a surge of selling across Japanese leisure shares.

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

"The China-Japan tension over Taiwan and Beijing's advisory discouraging visits to Japan brings near-term difficulties for consumer-facing sectors.

"Tourists from China represent roughly 25% of Japan's inbound traffic, making retail outlets, high-end shopping, and tourism services especially at risk."

GDP Contraction Breakdown

Japanese gross domestic product dropped by 0.4 percent in the July-September quarter, as manufacturers' exports were affected by duties imposed by the US recently.

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

Previously, the American government had threatened Japan with a new 25 percent tariff on its goods, which was later reduced to 15% when the two nations reached a trade deal.

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

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

"The Japanese economic situation 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 returning on a gradual recovery trend going forward."

The US administration has lately acknowledged the impact of tariffs on US consumers, lowering tariffs on food imports including beef, produce, coffee and fruits amid growing concerns about increasing costs.

Economic Calendar

• 8am GMT: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August