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The Japanese economic system has shown a contraction for the initial time in six quarters, mainly driven by weakening overseas shipments due to newly imposed US trade duties.

Group of Seven Growth Rankings

The Japanese economy stands as the first Group of Seven nation to report an output shrinkage in the previous three-month period.

With the United States yet to release its gross domestic product figures for Q3 2025, the current G7 growth leaderboard show:

• France: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canadian economy: 0.1 percent (provisional estimate)
• Germany: 0%
• Italy: 0%
• Japan: negative 0.4 percent

Tourism Shares Slump amid Diplomatic Dispute with Beijing

Alongside the economic contraction, Japan is experiencing an escalating political tension with China concerning Taiwan.

Stocks in Japan's travel and consumer businesses have declined sharply after China recommended its residents to avoid visiting to Japan.

This action by Chinese authorities intensified a political dispute that was initiated by comments from Tokyo's recently appointed PM about the possibility of deploying troops in the case of a hypothetical Chinese attack on Taiwan.

The situation led to a wave of selling across Japan's leisure stocks.

• The Tokyo Disneyland operator stock fell by 5.7%
• The department store chain plummeted by 11.3 percent
• Japan Airlines fell by 3.75%

"The ongoing tension over Taiwan and Beijing's advisory advising against visits to Japan brings short-term difficulties for retail and hospitality sectors.

"Chinese visitors represent roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and tourism services particularly vulnerable."

GDP Decline Details

Japan's GDP dropped by 0.4 percent in the July-September quarter, as manufacturers' exports were affected by duties imposed by the US 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% lower than a year ago.

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

Private demand also fell, by 0.3% quarter-on-quarter.

On an annualized basis, Japan's real gross domestic product shrank by 1.8% in the three months through September.

"The Japanese economic situation was stable in the first half of this year and the latest GDP figures showed that momentum is halted temporarily.

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

The US administration has recently acknowledged the effect of tariffs on Americans, lowering tariffs on imported food products including meat, produce, coffee and bananas amid increasing concerns about rising costs.

Business Calendar

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