🔗 Share this article

Japan's economy has shown a drop for the first time in six quarters, largely driven by falling exports because of recent US trade duties.

G7 Economic Leaderboard

Japan stands as the first Group of Seven economy to report an GDP decline in the latest three-month period.

With the US still needing to publish its GDP figures for Q3 2025, the present G7 growth leaderboard display:

• The French economy: +0.5% quarterly growth
• UK: +0.1%
• Canadian economy: 0.1 percent (preliminary figure)
• Germany: zero growth
• Italian economy: 0%
• Japan: -0.4%

Tourism Shares Slump amid Diplomatic Rift with Beijing

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

Shares in Japanese tourism and consumer businesses have fallen sharply after China urged its citizens to avoid visiting to Japan.

This action by Beijing intensified a political dispute that was initiated by comments from Japan's new prime minister about the possibility of deploying forces in the event of a potential Chinese invasion on Taiwan.

The development caused a surge of sell-offs across Japanese tourism-related shares.

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

"The ongoing tension over Taiwan and China's travel warning advising against travel to Japan creates short-term difficulties for retail and hospitality sectors.

"Chinese visitors represent roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and hospitality especially vulnerable."

Economic Decline Details

Japanese gross domestic product declined by 0.4% in the third quarter, as manufacturers' overseas shipments were hit by tariffs levied by the US recently.

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

Earlier this year, the US administration had threatened Japan with a additional 25 percent tariff on its goods, which was later reduced to 15% when the two nations concluded a trade agreement.

Consumer spending also declined, 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.

"Japan's economy was strong 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 back on a moderate recovery trend going forward."

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

Business Agenda

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