🔗 Share this article

The Japanese economic system has experienced a drop for the initial time in six quarters, primarily driven by declining overseas shipments because of newly imposed American tariffs.

Group of Seven Growth Rankings

The Japanese economy stands as the first G7 country to announce an economic contraction in the most recent quarter.

As the US still needing to release its gross domestic product figures for the third quarter, the current G7 growth rankings indicate:

• The French economy: 0.5 percent expansion
• UK: 0.1 percent
• Canadian economy: 0.1 percent (preliminary figure)
• German economy: 0%
• Italian economy: 0%
• Japan: negative 0.4 percent

Tourism Stocks Decline amid Political Rift with Beijing

Alongside the economic contraction, Japan is facing an escalating diplomatic conflict with China concerning Taiwan.

Shares in Japanese travel and consumer firms have dropped noticeably after China urged its residents to avoid visiting to Japan.

This action by Chinese authorities escalated a political dispute that was sparked by statements from Japan's recently appointed PM about the possibility of deploying troops in the case of a hypothetical Chinese attack on Taiwan.

The situation triggered a surge of selling across Japanese leisure stocks.

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

"The China-Japan tension over Taiwan and China's advisory advising against visits to Japan creates short-term challenges for retail and hospitality sectors.

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

Economic Contraction Breakdown

Japan's GDP fell by 0.4 percent in the third quarter, as industrial exports were hit by tariffs levied by the United States recently.

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

Previously, the American government had proposed Japan with a new 25% tariff on its products, which was later reduced to 15% when the two nations concluded a trade deal.

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 strong in the initial six months of this year and the latest GDP figures showed that momentum is paused for now.

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

The US administration has lately recognized the impact of tariffs on Americans, lowering duties on food imports including meat, produce, coffee and bananas amid growing concerns about increasing costs.

Economic Calendar

• 8am GMT: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August