The Japanese Economy Contracts as Overseas Sales Suffer by American Tariffs
The Japanese economic system has shown a contraction for the first time in a year and a half, primarily caused by falling exports as a result of recent US tariffs.
G7 Economic Leaderboard
The Japanese economy stands as the first G7 country to report an GDP decline in the most recent quarter.
With the US still needing to release its GDP data for Q3 2025, the present G7 growth leaderboard indicate:
- The French economy: 0.5 percent expansion
- United Kingdom: 0.1 percent
- Canadian economy: +0.1% (provisional estimate)
- Germany: 0%
- Italy: 0%
- Japan: negative 0.4 percent
Travel Stocks Decline during Diplomatic Dispute with China
In addition to the GDP decline, Japan is dealing with an growing diplomatic conflict with China concerning Taiwan.
Stocks in Japan's travel and retail firms have declined sharply after China recommended its nationals to avoid visiting to Japan.
This move by Chinese authorities intensified a diplomatic feud that was initiated by remarks from Japan's recently appointed PM about the possibility of deploying forces in the event of a potential Chinese attack on Taiwan.
The situation caused a surge of selling across Japan's tourism-related shares.
- Oriental Land stock fell by 5.7%
- The department store chain tumbled by 11.3 percent
- The national carrier declined by 3.75 percent
"The China-Japan dispute over Taiwan and China's advisory discouraging visits to Japan introduces short-term headwinds for retail and hospitality sectors.
"Chinese visitors represent roughly 25 percent of Japan's international visitors, making department stores, luxury retail, and hospitality particularly vulnerable."
Economic Contraction Breakdown
Japanese GDP fell by 0.4% in the July-September quarter, as industrial exports were impacted by duties levied by the US this year.
Exports were a key factor of the contraction, falling by 1.2% compared with the April-June quarter, and were 4.5% lower than a year ago.
Earlier this year, the US administration had proposed Japan with a new 25 percent tariff on its goods, which was later lowered to 15 percent when the two nations reached a trade deal.
Private demand also declined, by 0.3 percent compared to the previous 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 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 returning on a moderate recovery trend going forward."
The White House has lately recognized the impact of tariffs on US consumers, reducing duties on imported food products including beef, tomatoes, coffee and fruits amid growing concerns about rising costs.
Business Agenda
- 8am GMT: Switzerland GDP report for Q3
- 3pm GMT: US construction spending data for August
