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The Japanese economic system has recorded a decline for the initial time in a year and a half, mainly caused by weakening exports as a result of recent US tariffs.

G7 Growth Standings

Japan stands as the first G7 country to announce an economic contraction in the latest three-month period.

With the United States yet to release its gross domestic product data for Q3 2025, the current G7 economic leaderboard show:

• France: 0.5 percent quarterly growth
• United Kingdom: +0.1%
• Canada: +0.1% (provisional estimate)
• German economy: 0%
• Italian economy: 0%
• Japan: -0.4%

Tourism Stocks Slump amid Diplomatic Dispute with China

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

Shares in Japanese tourism and consumer businesses have declined significantly after China urged its nationals to refrain from visiting to Japan.

This move by Chinese authorities heightened a political dispute that was sparked by remarks from Tokyo's recently appointed PM about the possibility of sending forces in the case of a hypothetical Chinese invasion on Taiwan.

The situation triggered a wave of selling across Japan's leisure stocks.

• The Tokyo Disneyland operator shares fell by 5.7%
• The department store chain plummeted by 11.3%
• The national carrier fell by 3.75 percent

"The ongoing tension over Taiwan and China's travel warning discouraging visits to Japan brings near-term challenges for consumer-facing sectors.

"Chinese visitors account for roughly 25% of Japan's international visitors, making department stores, luxury retail, and hospitality particularly vulnerable."

GDP Contraction Breakdown

Japanese gross domestic product fell by 0.4% in the July-September quarter, as industrial overseas shipments were hit by tariffs levied by the US this year.

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

Earlier this year, the US administration had threatened Japan with a additional 25 percent tariff on its goods, which was later lowered to 15% when the two countries concluded a trade agreement.

Consumer spending also fell, by 0.3% quarter-on-quarter.

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

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

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

The White House has lately recognized the effect of tariffs on Americans, lowering duties on food imports including beef, produce, coffee and bananas amid increasing concerns about rising costs.

Business Agenda

• 8am GMT: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August