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Japan's economy has experienced a contraction for the initial time in six quarters, mainly driven by declining overseas shipments due to recent US tariffs.

Group of Seven Economic Rankings

Japan has become the initial Group of Seven nation to announce an economic contraction in the most recent quarter.

As the US still needing to release its gross domestic product figures for Q3 2025, the present Group of Seven economic standings indicate:

• The French economy: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (provisional estimate)
• Germany: zero growth
• Italian economy: no growth
• Japan: -0.4%

Tourism Stocks Slump during Political Dispute with China

Alongside the economic contraction, Japan is facing an intensifying diplomatic conflict with China regarding Taiwan.

Stocks in Japanese tourism and consumer businesses have fallen significantly after China recommended its residents to avoid traveling to Japan.

This action by Beijing heightened a diplomatic feud that was triggered by remarks from Tokyo's recently appointed PM about the possibility of sending forces in the case of a hypothetical Chinese invasion on Taiwan.

The development led to a surge of sell-offs across Japanese leisure shares.

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

"The China-Japan tension over Taiwan and Beijing's travel warning advising against travel to Japan creates short-term challenges for consumer-facing sectors.

"Tourists from China represent roughly 25% of Japan's international visitors, making department stores, luxury retail, and tourism services particularly vulnerable."

GDP Contraction Breakdown

Japan's GDP dropped by 0.4 percent in the third quarter, as industrial exports were impacted by duties imposed by the US recently.

Exports were a primary factor of the decline, dropping by 1.2 percent compared with the previous quarter, and were 4.5% lower than a year ago.

Previously, the American government had threatened Japan with a new 25% tariff on its goods, which was later lowered to 15% when the two countries concluded a trade agreement.

Private demand also declined, by 0.3% quarter-on-quarter.

On an annual basis, Japan's GDP contracted by 1.8 percent in the three months through September.

"Japan's economy was solid in the first half of this year and the latest GDP figures showed that momentum is halted temporarily.

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

The US administration has lately acknowledged the effect of tariffs on US consumers, reducing duties on food imports including beef, tomatoes, coffee and fruits amid growing concerns about increasing costs.

Business Agenda

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