The Japanese Economy Contracts while Exports Are Hit by American Trade Duties
Japan's economy has experienced a drop for the initial time in six quarters, primarily driven by falling exports because of newly imposed American tariffs.
Group of Seven Economic Standings
Japan has become the initial G7 nation to report an economic contraction in the latest quarter.
With the United States yet to release its GDP figures for Q3 2025, the present G7 growth standings show:
- The French economy: +0.5% expansion
- United Kingdom: 0.1 percent
- Canada: +0.1% (provisional estimate)
- German economy: zero growth
- Italy: no growth
- Japanese economy: -0.4%
Travel Stocks Slump during Political Dispute with China
Alongside the GDP decline, Japan is dealing with an intensifying political conflict with China regarding Taiwan.
Stocks in Japan's travel and retail businesses have fallen significantly after China advised its nationals to avoid visiting to Japan.
This decision by Chinese authorities escalated a political dispute that was sparked by comments from Tokyo's recently appointed prime minister about the possibility of deploying troops in the event of a hypothetical Chinese invasion on Taiwan.
The development caused a wave of selling across Japan's leisure stocks.
- Oriental Land shares dropped by 5.7%
- The department store chain plummeted by 11.3 percent
- The national carrier declined by 3.75%
"The ongoing tension over Taiwan and Beijing's advisory advising against travel to Japan creates short-term difficulties for retail and hospitality sectors.
"Chinese visitors account for roughly 25 percent of Japan's international visitors, making department stores, luxury retail, and hospitality especially at risk."
Economic Contraction Breakdown
Japanese gross domestic product declined by 0.4 percent in the third quarter, as industrial overseas shipments were hit by tariffs levied by the United States recently.
Overseas shipments were a primary driver of the contraction, falling by 1.2 percent compared with the April-June 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 reduced to 15% when the two countries concluded a trade deal.
Private demand also declined, by 0.3 percent quarter-on-quarter.
On an annualized basis, Japan's real gross domestic product shrank by 1.8% in the quarter through September.
"Japan's economy was solid in the first half of this year and today's GDP figures showed that growth is halted for now.
I anticipate Japan's economy to be back on a moderate growth trend going forward."
The US administration has recently recognized the impact of tariffs on Americans, reducing tariffs on food imports including beef, tomatoes, coffee and fruits amid increasing concerns about increasing costs.
Business Agenda
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 3pm GMT: US construction spending data for August
