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The Japanese economic system has experienced a drop for the first time in a year and a half, largely driven by declining exports because of recent US tariffs.

G7 Growth Rankings

The Japanese economy stands as the first Group of Seven economy to report an output shrinkage in the latest quarter.

As the United States still needing to publish its gross domestic product data for Q3 2025, the current Group of Seven economic standings show:

• France: 0.5 percent quarterly growth
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (provisional estimate)
• Germany: 0%
• Italy: 0%
• Japanese economy: -0.4%

Tourism Shares Decline amid Political Dispute with Beijing

Alongside the GDP decline, Japan is experiencing an growing political dispute with China concerning Taiwan.

Shares in Japan's tourism and consumer businesses have declined noticeably after China advised its nationals to avoid traveling to Japan.

This action by Chinese authorities intensified a diplomatic feud that was triggered by remarks from Tokyo's new PM about the possibility of deploying forces in the case of a potential Chinese attack on Taiwan.

The situation led to a surge of selling across Japan's leisure stocks.

• Oriental Land stock fell by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3%
• Japan Airlines fell by 3.75 percent

"The China-Japan tension over Taiwan and Beijing's advisory advising against travel to Japan brings short-term challenges for consumer-facing sectors.

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making department stores, luxury retail, and hospitality especially vulnerable."

GDP Contraction Details

Japanese gross domestic product dropped by 0.4% in the third quarter, as manufacturers' overseas shipments were hit by tariffs imposed by the US this year.

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

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

Private demand 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 quarter through September.

"Japan's economy was solid in the first half of this year and today's GDP figures showed that growth is halted temporarily.

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

The White House has recently acknowledged the impact of tariffs on US consumers, reducing duties on food imports including meat, tomatoes, beverages and fruits amid growing concerns about increasing costs.

Economic Calendar

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