Japan's Economy Declines while Exports Are Hit by American Tariffs

Japan's economy has shown a drop for the initial time in a year and a half, mainly caused by weakening exports due to newly imposed American trade duties.

Group of Seven Growth Standings

Japan has become the first Group of Seven economy to announce an GDP decline in the latest quarter.

As the United States still needing to release its gross domestic product figures for Q3 2025, the present G7 growth standings show:

• The French economy: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canada: +0.1% (preliminary figure)
• German economy: zero growth
• Italy: 0%
• Japanese economy: negative 0.4 percent

Tourism Shares Decline during Political Dispute with China

In addition to the economic contraction, Japan is facing an escalating diplomatic tension with China regarding Taiwan.

Stocks in Japan's tourism and consumer companies have dropped noticeably after China recommended its residents to refrain from visiting to Japan.

This decision by Chinese authorities intensified a political dispute that was triggered by statements from Tokyo's recently appointed prime minister about the possibility of sending troops in the event of a potential Chinese invasion on Taiwan.

The situation caused a wave of selling across Japan's tourism-related stocks.

• Oriental Land stock fell by 5.7%
• The department store chain plummeted by 11.3%
• Japan Airlines declined by 3.75 percent

"The ongoing dispute over Taiwan and Beijing's advisory discouraging visits to Japan brings short-term challenges for retail and hospitality sectors.

"Tourists from China account for roughly 25% of Japan's international visitors, making retail outlets, luxury retail, and hospitality particularly vulnerable."

Economic Decline Breakdown

Japan's gross domestic product declined by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were affected by tariffs levied by the United States recently.

Exports were a major 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.

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

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

On an annual basis, Japan's GDP shrank by 1.8% in the three months through September.

"Japan's economy was stable in the initial six months of this year and the latest GDP data showed that growth is halted for now.

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

The White House has recently recognized the impact of tariffs on US consumers, reducing tariffs on imported food products including meat, produce, coffee and bananas amid growing concerns about rising costs.

Business Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August