Japan's Economy Declines while Exports Are Hit by US Trade Duties
Japan's economy has shown a contraction for the first time in six quarters, primarily caused by declining overseas shipments as a result of recent American tariffs.
G7 Growth Standings
Japan stands as the initial G7 nation to report an GDP decline in the latest quarter.
As the US still needing to release its GDP data for Q3 2025, the present G7 growth standings show:
- France: 0.5 percent expansion
- UK: +0.1%
- Canada: 0.1 percent (provisional estimate)
- Germany: 0%
- Italy: no growth
- Japan: negative 0.4 percent
Tourism Stocks Decline amid Political Rift with China
Alongside the economic contraction, Japan is dealing with an intensifying political tension with China concerning Taiwan.
Stocks in Japan's tourism and consumer businesses have declined noticeably after China recommended its nationals to refrain from traveling to Japan.
This decision by Beijing intensified a political dispute that was sparked by remarks from Tokyo's new prime minister about the possibility of deploying forces in the case of a hypothetical Chinese attack on Taiwan.
The development led to a wave of selling across Japanese tourism-related shares.
- The Tokyo Disneyland operator shares fell by 5.7 percent
- The department store chain plummeted by 11.3%
- Japan Airlines fell by 3.75 percent
"The ongoing dispute over Taiwan and China's travel warning discouraging visits to Japan introduces near-term challenges for consumer-facing sectors.
"Tourists from China account for roughly 25 percent of Japan's international visitors, making department stores, luxury retail, and hospitality particularly at risk."
Economic Contraction Details
Japanese GDP declined by 0.4% in the third quarter, as manufacturers' exports were impacted by duties imposed by the United States recently.
Exports were a key factor of the decline, falling by 1.2 percent compared with the April-June quarter, and were 4.5% lower than a year ago.
Previously, the US administration had threatened Japan with a additional 25 percent tariff on its products, which was later reduced to 15% when the two nations concluded a trade deal.
Consumer spending also declined, by 0.3 percent quarter-on-quarter.
On an annual basis, Japan's GDP shrank by 1.8 percent in the quarter through September.
"The Japanese economic situation was stable in the first half 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 recently acknowledged the impact of tariffs on Americans, reducing tariffs on imported food products including meat, produce, coffee and bananas amid growing concerns about increasing costs.
Business Agenda
- 8am GMT: Swiss GDP report for Q3
- 3pm GMT: US construction spending data for August
