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Japan's economy has recorded a contraction for the first time in six quarters, largely caused by falling exports as a result of newly imposed American tariffs.

G7 Economic Standings

The Japanese economy has become the first Group of Seven economy to disclose an GDP decline in the most recent quarter.

With the United States yet to release its GDP figures for Q3 2025, the current G7 economic leaderboard display:

• France: +0.5% expansion
• UK: 0.1 percent
• Canadian economy: +0.1% (preliminary figure)
• Germany: zero growth
• Italian economy: 0%
• Japan: negative 0.4 percent

Tourism Shares Decline during Diplomatic Rift with China

In addition to the economic contraction, Japan is dealing with an intensifying political tension with China regarding Taiwan.

Stocks in Japan's tourism and consumer firms have dropped noticeably after China urged its nationals to refrain from visiting to Japan.

This move by Beijing heightened a diplomatic feud that was sparked by comments from Japan's new PM about the potential of deploying forces in the case of a potential Chinese invasion on Taiwan.

The situation led to a wave of sell-offs across Japanese tourism-related stocks.

• The Tokyo Disneyland operator shares fell by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3 percent
• The national carrier fell by 3.75 percent

"The China-Japan tension over Taiwan and China's advisory advising against visits to Japan brings short-term difficulties for consumer-facing sectors.

"Tourists from China account for roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and hospitality especially vulnerable."

Economic Decline Details

Japan's GDP fell by 0.4% in the third quarter, as industrial exports were hit by duties levied by the United States this year.

Overseas shipments were a key driver of the contraction, falling by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a year ago.

Previously, the American government had proposed Japan with a additional 25 percent tariff on its products, which was later reduced to 15% when the two countries 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.

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

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

The White House has recently acknowledged the impact of tariffs on US consumers, lowering tariffs on food imports including beef, tomatoes, coffee and bananas amid increasing concerns about rising costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August