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Japan's economy has shown a contraction for the initial time in six quarters, mainly caused by declining exports as a result of recent American tariffs.

G7 Growth Rankings

Japan has become the first Group of Seven economy to announce an GDP decline in the latest three-month period.

As the US still needing to release its gross domestic product data for Q3 2025, the present G7 economic leaderboard show:

• France: +0.5% quarterly growth
• UK: +0.1%
• Canada: 0.1 percent (preliminary figure)
• Germany: zero growth
• Italian economy: 0%
• Japan: negative 0.4 percent

Travel Shares Decline amid Diplomatic Dispute with China

Alongside the economic contraction, Japan is facing an escalating political tension with China regarding Taiwan.

Shares in Japan's tourism and retail companies have declined sharply after China urged its nationals to refrain from visiting to Japan.

This move by Chinese authorities escalated a political dispute that was initiated by statements from Japan's recently appointed PM about the potential of deploying troops in the case of a potential Chinese attack on Taiwan.

The development caused a surge of selling across Japanese tourism-related shares.

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

"The China-Japan tension over Taiwan and China's travel warning discouraging travel to Japan creates short-term difficulties for consumer-facing sectors.

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

Economic Contraction Breakdown

Japan's GDP dropped by 0.4 percent in the third quarter, as manufacturers' exports were impacted by duties imposed by the United States this year.

Exports were a major driver of the contraction, dropping by 1.2% compared with the previous quarter, and were 4.5% lower than a year ago.

Earlier this year, the American government had threatened Japan with a additional 25 percent tariff on its products, which was later reduced to 15% when the two countries concluded a trade agreement.

Consumer spending also fell, by 0.3% compared to the previous quarter.

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

"Japan's economy was solid in the initial six months of this year and the latest GDP figures showed that growth is halted temporarily.

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

The US administration has recently recognized the impact of tariffs on US consumers, lowering duties on imported food products including beef, tomatoes, beverages and bananas amid increasing concerns about increasing costs.

Economic Agenda

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