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The Japanese economic system has recorded a drop for the first time in a year and a half, mainly caused by declining overseas shipments because of recent US tariffs.

Group of Seven Growth Standings

Japan has become the initial Group of Seven country to report an economic contraction in the previous three-month period.

With the US still needing to release its GDP figures for Q3 2025, the present G7 economic rankings display:

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

Tourism Shares Decline amid Political Rift with China

In addition to the GDP decline, Japan is experiencing an intensifying political tension with China concerning Taiwan.

Shares in Japanese tourism and consumer businesses have fallen noticeably after China recommended its residents to refrain from traveling to Japan.

This decision by Beijing intensified a political dispute that was triggered by remarks from Japan's new PM about the potential of sending troops in the case of a hypothetical Chinese attack on Taiwan.

The development led to a surge of sell-offs across Japanese tourism-related shares.

• Oriental Land shares fell by 5.7 percent
• The department store chain plummeted by 11.3 percent
• Japan Airlines declined by 3.75%

"The China-Japan tension over Taiwan and China's travel warning discouraging visits to Japan brings short-term difficulties for retail and hospitality sectors.

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

Economic Contraction Breakdown

Japanese GDP fell by 0.4% in the July-September quarter, as manufacturers' overseas shipments were affected by tariffs levied by the United States this year.

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

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

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

On an annual basis, Japan's real gross domestic product contracted by 1.8 percent in the quarter 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 for now.

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

The White House has lately recognized the effect of tariffs on US consumers, reducing duties on food imports including beef, produce, coffee and fruits amid growing concerns about rising costs.

Business Agenda

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