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The Japanese economic system has experienced a contraction for the first time in a year and a half, largely caused by falling exports because of newly imposed US trade duties.

Group of Seven Economic Standings

The Japanese economy stands as the first Group of Seven country to report an GDP decline in the most recent three-month period.

With the US yet to publish its GDP figures for Q3 2025, the current Group of Seven economic standings show:

• The French economy: +0.5% expansion
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (preliminary figure)
• Germany: zero growth
• Italy: no growth
• Japanese economy: -0.4%

Travel Stocks Decline amid Political Rift with Beijing

In addition to the economic contraction, Japan is experiencing an escalating diplomatic conflict with China concerning Taiwan.

Stocks in Japanese tourism and consumer companies have declined noticeably after China advised its residents to refrain from traveling to Japan.

This action by Beijing escalated a political dispute that was triggered by remarks from Tokyo's recently appointed PM about the possibility of deploying troops in the event of a hypothetical Chinese invasion on Taiwan.

The situation caused a wave of sell-offs across Japan's leisure stocks.

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

"The ongoing dispute over Taiwan and China's advisory advising against visits to Japan introduces near-term headwinds for retail and hospitality sectors.

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and hospitality especially vulnerable."

Economic Decline Details

Japanese GDP declined by 0.4% in the third quarter, as manufacturers' exports were hit by duties levied by the US recently.

Overseas shipments were a key factor of the decline, falling by 1.2 percent compared with the April-June quarter, and were 4.5% lower than a the same period last year.

Previously, the US administration had threatened Japan with a new 25 percent tariff on its goods, which was later lowered to 15 percent when the two nations concluded a trade agreement.

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

On an annualized basis, Japan's GDP shrank by 1.8% in the three months through September.

"Japan's economy was stable in the initial six months of this year and the latest GDP data showed that growth is paused for now.

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

The US administration has recently recognized the effect of tariffs on US consumers, lowering duties on food imports including meat, tomatoes, beverages and fruits amid increasing concerns about increasing costs.

Economic Calendar

• 8am GMT: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August