Japan's Economy Shrinks while Overseas Sales Face Impact by US Trade Duties
Japan's economy has recorded a contraction for the first time in a year and a half, primarily caused by declining overseas shipments as a result of recent American tariffs.
Group of Seven Growth Standings
The Japanese economy has become the initial G7 nation to report an GDP decline in the most recent three-month period.
As the US still needing to release its gross domestic product figures for Q3 2025, the current Group of Seven economic leaderboard show:
- The French economy: 0.5 percent quarterly growth
- United Kingdom: +0.1%
- Canada: +0.1% (preliminary figure)
- Germany: 0%
- Italy: no growth
- Japan: -0.4%
Travel Shares Slump amid Diplomatic Rift with Beijing
Alongside the GDP decline, Japan is dealing with an escalating diplomatic tension with China regarding Taiwan.
Stocks in Japan's travel and retail businesses have declined sharply after China advised its citizens to refrain from traveling to Japan.
This action by Chinese authorities heightened a diplomatic feud that was sparked by remarks from Tokyo's recently appointed PM about the potential of deploying forces in the case of a hypothetical Chinese attack on Taiwan.
The development caused a wave of selling across Japanese tourism-related stocks.
- Oriental Land shares dropped by 5.7 percent
- Isetan Mitsukoshi plummeted by 11.3 percent
- The national carrier fell by 3.75%
"The ongoing tension over Taiwan and Beijing's travel warning discouraging visits to Japan creates near-term challenges for retail and hospitality sectors.
"Chinese visitors represent roughly 25% of Japan's inbound traffic, making department stores, high-end shopping, and hospitality especially at risk."
GDP Decline Breakdown
Japanese GDP declined by 0.4% in the third quarter, as industrial overseas shipments were impacted by duties imposed by the US recently.
Exports were a primary driver of the decline, dropping by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a year ago.
Earlier this year, the American government had proposed Japan with a additional 25 percent tariff on its products, which was later reduced to 15% when the two countries concluded a trade deal.
Private demand also declined, by 0.3 percent compared to the previous 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 strong in the initial six months of this year and the latest GDP figures showed that growth is halted for now.
I expect Japan's economy to be returning on a gradual recovery trend going forward."
The White House has recently recognized the effect of tariffs on Americans, lowering duties on food imports including beef, tomatoes, beverages and bananas amid increasing concerns about increasing costs.
Business Calendar
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
