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The Japanese economic system has recorded a contraction for the initial time in a year and a half, mainly driven by declining overseas shipments because of newly imposed American tariffs.

G7 Growth Leaderboard

Japan has become the first Group of Seven nation to report an GDP decline in the previous three-month period.

With the United States yet to release its GDP data for Q3 2025, the current G7 economic standings display:

• The French economy: 0.5 percent quarterly growth
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (provisional estimate)
• German economy: zero growth
• Italian economy: 0%
• Japanese economy: -0.4%

Travel Stocks Slump during Diplomatic Rift with China

Alongside the economic contraction, Japan is experiencing an growing diplomatic dispute with China regarding Taiwan.

Stocks in Japanese tourism and retail firms have dropped sharply after China recommended its citizens to refrain from visiting to Japan.

This action by Beijing intensified a diplomatic feud that was sparked by remarks from Japan's recently appointed prime minister about the possibility of deploying forces in the case of a potential Chinese attack on Taiwan.

The development triggered a wave of selling across Japanese tourism-related stocks.

• Oriental Land shares dropped by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier fell by 3.75%

"The ongoing dispute over Taiwan and China's advisory discouraging visits to Japan creates near-term headwinds for retail and hospitality sectors.

"Chinese visitors account for roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and hospitality particularly vulnerable."

GDP Decline Breakdown

Japan's GDP dropped by 0.4 percent in the third quarter, as manufacturers' overseas shipments were affected by duties levied by the United States this year.

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

Earlier this year, the American government had proposed Japan with a additional 25 percent tariff on its products, which was later lowered to 15 percent when the two countries concluded a trade agreement.

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.

"The Japanese economic situation was stable in the initial six months of this year and the latest GDP figures showed that momentum is paused temporarily.

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

The White House has recently acknowledged the impact of tariffs on Americans, reducing duties on imported food products including meat, produce, coffee and bananas amid increasing concerns about rising costs.

Economic Agenda

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