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Japan's economy has experienced a drop for the initial time in six quarters, mainly driven by falling exports as a result of recent American tariffs.

Group of Seven Growth Leaderboard

The Japanese economy has become the first Group of Seven country to report an GDP decline in the previous quarter.

With the US yet to release its gross domestic product data for Q3 2025, the current G7 economic standings show:

• France: 0.5 percent quarterly growth
• United Kingdom: +0.1%
• Canadian economy: 0.1 percent (provisional estimate)
• German economy: 0%
• Italian economy: no growth
• Japan: negative 0.4 percent

Tourism Shares Slump amid Political Rift with Beijing

Alongside the economic contraction, Japan is facing an escalating diplomatic conflict with China concerning Taiwan.

Shares in Japan's travel and consumer companies have fallen sharply after China urged its nationals to avoid visiting to Japan.

This action by Chinese authorities heightened a diplomatic feud that was initiated by comments from Japan's new prime minister about the possibility of sending forces in the event of a potential Chinese invasion on Taiwan.

The development triggered a wave of selling across Japanese tourism-related shares.

• Oriental Land shares fell by 5.7%
• Isetan Mitsukoshi plummeted by 11.3 percent
• The national carrier fell by 3.75%

"The ongoing tension over Taiwan and China's travel warning advising against visits to Japan creates near-term headwinds for retail and hospitality sectors.

"Chinese visitors account for roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and tourism services particularly at risk."

Economic Contraction Breakdown

Japanese GDP fell by 0.4 percent in the July-September quarter, as industrial exports were hit by duties imposed by the United States this year.

Exports were a primary driver of the contraction, dropping by 1.2% compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

Previously, the American government had proposed Japan with a additional 25 percent tariff on its goods, which was later lowered to 15 percent when the two nations reached a trade deal.

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

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

"The Japanese economic situation was stable in the initial six months of this year and the latest GDP data showed that momentum is halted temporarily.

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

The White House has recently acknowledged the impact of tariffs on Americans, lowering duties on imported food products including beef, produce, beverages and bananas amid increasing concerns about rising costs.

Business Calendar

• 8am GMT: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August