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Japan's economy has experienced a contraction for the initial time in six quarters, largely caused by weakening overseas shipments as a result of recent US trade duties.

Group of Seven Economic Standings

Japan has become the initial G7 economy to report an GDP decline in the previous quarter.

With the US still needing to publish its GDP figures for Q3 2025, the present Group of Seven economic rankings show:

• The French economy: 0.5 percent quarterly growth
• UK: +0.1%
• Canadian economy: +0.1% (preliminary figure)
• German economy: 0%
• Italian economy: no growth
• Japan: -0.4%

Tourism Shares Slump during Diplomatic Dispute with China

Alongside the GDP decline, Japan is dealing with an intensifying diplomatic tension with China regarding Taiwan.

Shares in Japanese travel and consumer firms have declined sharply after China advised its nationals to avoid traveling to Japan.

This move by Beijing intensified a political dispute that was triggered by remarks from Japan's recently appointed prime minister about the potential of sending troops in the event of a hypothetical Chinese attack on Taiwan.

The situation led to a wave of sell-offs across Japan's leisure shares.

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

"The ongoing dispute over Taiwan and Beijing's advisory advising against visits to Japan introduces short-term headwinds for retail and hospitality sectors.

"Chinese visitors account for roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and tourism services especially vulnerable."

Economic Decline Breakdown

Japanese gross domestic product dropped by 0.4% in the July-September quarter, as manufacturers' overseas shipments were impacted by duties imposed by the United States this year.

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

Previously, the US administration had proposed Japan with a additional 25% tariff on its products, which was later reduced to 15% when the two countries concluded a trade deal.

Consumer spending also declined, by 0.3 percent quarter-on-quarter.

On an annual basis, Japan's GDP 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 halted temporarily.

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

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

Economic Calendar

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