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Japan's economy has experienced a contraction for the initial time in six quarters, primarily driven by weakening exports as a result of newly imposed US tariffs.

Group of Seven Growth Leaderboard

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

With the US still needing to release its GDP figures for Q3 2025, the current G7 economic rankings indicate:

• France: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canada: 0.1 percent (provisional estimate)
• German economy: 0%
• Italy: no growth
• Japanese economy: negative 0.4 percent

Travel Shares Slump amid Diplomatic Dispute with Beijing

Alongside the GDP decline, Japan is experiencing an growing political conflict with China concerning Taiwan.

Stocks in Japan's travel and consumer companies have fallen sharply after China advised its nationals to avoid traveling to Japan.

This move by Beijing heightened a political dispute that was sparked by comments from Japan's recently appointed prime minister about the possibility of sending troops in the event of a hypothetical Chinese invasion on Taiwan.

The situation triggered a wave of sell-offs across Japan's tourism-related shares.

• Oriental Land shares dropped by 5.7%
• The department store chain tumbled by 11.3%
• The national carrier fell by 3.75 percent

"The China-Japan dispute over Taiwan and Beijing's travel warning discouraging visits to Japan creates short-term challenges for consumer-facing sectors.

"Tourists from China account for roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and tourism services particularly at risk."

GDP Decline Details

Japan's GDP fell by 0.4 percent in the July-September quarter, as industrial exports were affected by duties levied by the US recently.

Overseas shipments were a key driver of the decline, dropping by 1.2% compared with the previous quarter, and were 4.5 percent lower than a year ago.

Previously, the American government had threatened Japan with a new 25 percent tariff on its products, which was later reduced to 15% when the two nations concluded a trade agreement.

Private demand also fell, by 0.3% compared to the previous quarter.

On an annualized basis, Japan's GDP shrank by 1.8% in the quarter through September.

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

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

The US administration has recently acknowledged the effect of tariffs on Americans, reducing duties on imported food products including meat, produce, coffee and fruits amid growing concerns about rising costs.

Business Calendar

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