The Japanese Economy Shrinks while Overseas Sales Are Hit by US Tariffs
Japan's economy has recorded a decline for the first time in a year and a half, mainly caused by declining overseas shipments because of recent US trade duties.
G7 Economic Rankings
Japan has become the initial G7 economy to disclose an GDP decline in the most recent three-month period.
With the US still needing to release its gross domestic product data for Q3 2025, the current Group of Seven economic rankings show:
- France: +0.5% expansion
- UK: +0.1%
- Canadian economy: 0.1 percent (provisional estimate)
- Germany: 0%
- Italy: 0%
- Japanese economy: negative 0.4 percent
Tourism Stocks Slump amid Political Dispute with Beijing
Alongside the GDP decline, Japan is dealing with an growing political conflict with China regarding Taiwan.
Stocks in Japanese travel and retail businesses have dropped noticeably after China recommended its nationals to avoid visiting to Japan.
This action by Beijing intensified a political dispute that was triggered by comments from Tokyo's new PM about the possibility of sending forces in the case of a potential Chinese attack on Taiwan.
The situation led to a wave of selling across Japanese tourism-related stocks.
- The Tokyo Disneyland operator shares dropped by 5.7 percent
- Isetan Mitsukoshi plummeted by 11.3%
- The national carrier fell by 3.75%
"The China-Japan tension over Taiwan and Beijing's travel warning discouraging visits to Japan creates near-term challenges for retail and hospitality sectors.
"Chinese visitors account for roughly 25 percent of Japan's international visitors, making retail outlets, high-end shopping, and hospitality particularly vulnerable."
Economic Decline Breakdown
Japan's GDP fell by 0.4 percent in the July-September quarter, as manufacturers' exports were impacted by duties imposed by the US recently.
Overseas shipments were a key factor of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5% lower than a the same period last year.
Previously, the US administration had proposed Japan with a new 25% tariff on its products, which was later reduced to 15% when the two nations concluded a trade deal.
Consumer spending also declined, by 0.3 percent compared to the previous quarter.
On an annual basis, Japan's real gross domestic product shrank by 1.8% in the three months through September.
"Japan's economy was stable in the first half of this year and the latest GDP figures showed that growth is halted for now.
I anticipate Japan's economy to be back on a gradual recovery trend going forward."
The US administration has lately recognized the effect of tariffs on US consumers, reducing duties on imported food products including meat, produce, beverages and fruits amid growing concerns about rising costs.
Economic Agenda
- 8am GMT: Switzerland GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August