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Japan's economy has experienced a contraction for the first time in a year and a half, mainly caused by falling overseas shipments due to recent US trade duties.

Group of Seven Growth Leaderboard

The Japanese economy has become the first Group of Seven nation to report an output shrinkage in the latest quarter.

As the United States yet to release its GDP figures for Q3 2025, the present Group of Seven growth leaderboard indicate:

• The French economy: 0.5 percent quarterly growth
• United Kingdom: +0.1%
• Canada: +0.1% (preliminary figure)
• Germany: 0%
• Italian economy: 0%
• Japanese economy: -0.4%

Tourism Stocks Decline during Political Rift with China

Alongside the GDP decline, Japan is dealing with an growing diplomatic conflict with China regarding Taiwan.

Stocks in Japanese tourism and consumer businesses have dropped significantly after China recommended its citizens to refrain from traveling to Japan.

This move by Beijing escalated a political dispute that was initiated by remarks from Japan's recently appointed prime minister about the potential of sending troops in the event of a potential Chinese invasion on Taiwan.

The development triggered a wave of selling across Japan's tourism-related shares.

• Oriental Land shares dropped by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3 percent
• The national carrier declined by 3.75%

"The ongoing tension over Taiwan and China's travel warning advising against travel to Japan introduces near-term headwinds for consumer-facing sectors.

"Tourists from China account for roughly 25% of Japan's inbound traffic, making department stores, high-end shopping, and tourism services particularly vulnerable."

Economic Contraction Details

Japanese GDP dropped by 0.4% in the third quarter, as industrial overseas shipments were hit by duties levied by the US this year.

Overseas shipments were a major factor of the decline, dropping by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a year ago.

Earlier this year, the American government had threatened Japan with a additional 25% tariff on its goods, which was later reduced to 15 percent when the two countries reached a trade agreement.

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

On an annual basis, Japan's GDP contracted by 1.8 percent in the three months through September.

"The Japanese economic situation was strong in the first half of this year and the latest GDP figures showed that momentum is paused for now.

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

The White House has recently acknowledged the effect of tariffs on Americans, reducing duties on imported food products including beef, tomatoes, coffee and fruits amid growing concerns about increasing costs.

Economic Calendar

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