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Japan's economy has shown a drop for the first time in a year and a half, largely caused by declining overseas shipments due to newly imposed American tariffs.

G7 Economic Rankings

Japan has become the initial G7 economy to report an economic contraction in the most recent quarter.

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

• The French economy: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• Germany: zero growth
• Italian economy: no growth
• Japan: negative 0.4 percent

Travel Stocks Slump amid Diplomatic Dispute with China

Alongside the GDP decline, Japan is experiencing an growing political dispute with China regarding Taiwan.

Stocks in Japanese travel and retail companies have fallen noticeably after China urged its nationals to avoid visiting to Japan.

This action by Beijing escalated a diplomatic feud that was triggered by remarks from Tokyo's recently appointed prime minister about the possibility of deploying troops in the event of a potential Chinese invasion on Taiwan.

The development triggered a surge of sell-offs across Japan's tourism-related shares.

• The Tokyo Disneyland operator stock dropped by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3%
• The national carrier declined by 3.75%

"The ongoing dispute over Taiwan and Beijing's advisory advising against visits to Japan brings short-term headwinds for consumer-facing sectors.

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

Economic Decline Breakdown

Japan's gross domestic product declined by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were hit by duties imposed by the US this year.

Exports were a major driver of the contraction, dropping by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.

Earlier this year, the US administration had proposed Japan with a new 25 percent tariff on its goods, which was later lowered to 15% when the two nations concluded a trade deal.

Private demand also fell, by 0.3 percent quarter-on-quarter.

On an annual basis, Japan's real gross domestic product shrank by 1.8% in the three months through September.

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

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

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

Business Agenda

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