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The Japanese economic system has recorded a drop for the first time in a year and a half, largely caused by falling overseas shipments because of recent American trade duties.

G7 Economic Leaderboard

The Japanese economy stands as the initial Group of Seven economy to report an GDP decline in the previous three-month period.

With the US yet to release its gross domestic product data for Q3 2025, the current G7 economic leaderboard display:

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

Tourism Stocks Slump during Diplomatic Rift with Beijing

Alongside the economic contraction, Japan is experiencing an growing diplomatic tension with China concerning Taiwan.

Stocks in Japanese travel and consumer firms have fallen significantly after China urged its nationals to refrain from traveling to Japan.

This move by Chinese authorities heightened a political dispute that was sparked by statements from Tokyo's new PM about the potential of sending 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 shares fell by 5.7 percent
• The department store chain plummeted by 11.3 percent
• The national carrier declined by 3.75 percent

"The ongoing dispute over Taiwan and Beijing's travel warning advising against visits to Japan introduces near-term headwinds for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's international visitors, making department stores, luxury retail, and tourism services especially vulnerable."

GDP Decline Breakdown

Japanese GDP declined by 0.4 percent in the third quarter, as manufacturers' overseas shipments were affected by duties imposed by the US recently.

Exports were a key driver of the decline, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

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

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

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

"Japan's economy was stable in the first half of this year and today's GDP data showed that momentum is paused for now.

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

The White House has recently recognized the impact of tariffs on Americans, reducing duties on food imports including beef, produce, beverages and fruits amid increasing concerns about rising costs.

Economic Calendar

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