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Japan's economy has recorded a contraction for the first time in six quarters, largely caused by declining exports as a result of newly imposed US tariffs.

G7 Economic Standings

The Japanese economy has become the initial Group of Seven nation to report an GDP decline in the most recent three-month period.

As the US yet to release its GDP data for Q3 2025, the current Group of Seven economic leaderboard display:

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

Travel Stocks Decline amid Diplomatic Dispute with Beijing

Alongside the GDP decline, Japan is experiencing an escalating diplomatic conflict with China concerning Taiwan.

Shares in Japan's travel and consumer firms have fallen sharply after China advised its nationals to avoid visiting to Japan.

This decision by Beijing escalated a diplomatic feud that was sparked by remarks from Tokyo's new prime minister about the possibility of deploying troops in the case of a hypothetical Chinese attack on Taiwan.

The development led to a wave of sell-offs across Japan's tourism-related stocks.

• Oriental Land stock dropped by 5.7%
• The department store chain tumbled by 11.3 percent
• Japan Airlines declined by 3.75%

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

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

Economic Decline Details

Japan's gross domestic product dropped by 0.4% in the July-September quarter, as manufacturers' exports were hit by tariffs levied by the US recently.

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

Previously, the American government had proposed Japan with a new 25 percent tariff on its products, which was later lowered to 15 percent when the two nations reached a trade agreement.

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

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

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

The White House has recently acknowledged the effect of tariffs on Americans, reducing tariffs on imported food products including beef, tomatoes, coffee and bananas amid growing concerns about increasing costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August