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Japan's economy has experienced a decline for the first time in a year and a half, mainly caused by weakening exports as a result of recent American tariffs.

G7 Growth Standings

The Japanese economy stands as the initial Group of Seven country to disclose an output shrinkage in the most recent quarter.

With the United States yet to release its GDP data for Q3 2025, the current G7 economic leaderboard show:

• France: 0.5 percent quarterly growth
• UK: +0.1%
• Canada: 0.1 percent (provisional estimate)
• German economy: zero growth
• Italy: no growth
• Japan: negative 0.4 percent

Travel Shares Decline amid Political Dispute with China

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

Stocks in Japanese tourism and retail firms have declined significantly after China urged its citizens to avoid traveling to Japan.

This decision by Chinese authorities intensified a political dispute that was sparked by statements from Tokyo's recently appointed prime minister about the potential of sending forces in the case of a potential Chinese invasion on Taiwan.

The development led to a wave of selling across Japan's leisure stocks.

• The Tokyo Disneyland operator stock dropped by 5.7 percent
• The department store chain tumbled by 11.3 percent
• The national carrier fell by 3.75%

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

"Chinese visitors account for roughly 25 percent of Japan's international visitors, making department stores, luxury retail, and hospitality especially vulnerable."

GDP Decline Breakdown

Japanese GDP fell by 0.4% in the third quarter, as industrial exports were impacted by tariffs imposed by the United States recently.

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

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

Private demand also fell, by 0.3 percent quarter-on-quarter.

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

"The Japanese economic situation was strong in the initial six months of this year and today's GDP data showed that growth is paused temporarily.

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

The US administration has recently recognized the effect of tariffs on US consumers, lowering duties on food imports including beef, produce, coffee and fruits amid growing concerns about rising costs.

Economic Calendar

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