Japan's Economy Shrinks while Exports Suffer by American Tariffs
The Japanese economic system has shown a drop for the first time in a year and a half, largely driven by weakening exports because of recent American trade duties.
G7 Growth Leaderboard
Japan has become the first G7 nation to disclose an output shrinkage in the previous quarter.
With the US still needing to publish its gross domestic product data for Q3 2025, the present Group of Seven economic leaderboard show:
- The French economy: +0.5% expansion
- UK: +0.1%
- Canadian economy: 0.1 percent (provisional estimate)
- German economy: 0%
- Italy: 0%
- Japanese economy: -0.4%
Travel Shares Slump during Diplomatic Rift with Beijing
Alongside the GDP decline, Japan is experiencing an intensifying political tension with China concerning Taiwan.
Shares in Japan's tourism and consumer businesses have declined noticeably after China urged its residents to avoid traveling to Japan.
This decision by Beijing escalated a political dispute that was sparked by statements from Japan's new PM about the possibility of sending forces in the event of a hypothetical Chinese invasion on Taiwan.
The development led to a wave of selling across Japan's leisure shares.
- Oriental Land shares dropped by 5.7 percent
- Isetan Mitsukoshi tumbled by 11.3 percent
- Japan Airlines declined by 3.75 percent
"The China-Japan tension over Taiwan and China's advisory advising against travel to Japan creates near-term difficulties for retail and hospitality sectors.
"Tourists from China account for roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and tourism services especially at risk."
GDP Contraction Breakdown
Japan's gross domestic product declined by 0.4 percent in the July-September quarter, as industrial exports were impacted by tariffs levied by the United States this year.
Exports were a primary driver of the contraction, falling by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.
Previously, the US administration had threatened Japan with a additional 25% tariff on its goods, which was later lowered to 15% when the two nations concluded a trade deal.
Private demand also fell, by 0.3% quarter-on-quarter.
On an annual basis, Japan's real gross domestic product contracted by 1.8 percent in the three months through September.
"Japan's economy was stable in the first half of this year and today's GDP data showed that growth is paused for now.
I anticipate Japan's economy to be back on a moderate recovery trend going forward."
The US administration has recently acknowledged the effect of tariffs on US consumers, lowering duties on food imports including meat, tomatoes, coffee and fruits amid growing concerns about increasing costs.
Business Calendar
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 3pm GMT: US construction spending data for August
