Japan's Economy Shrinks while Exports Suffer by American Tariffs
The Japanese economic system has shown a drop for the first time in six quarters, largely driven by declining exports due to newly imposed American tariffs.
G7 Economic Standings
Japan has become the initial G7 country to announce an output shrinkage in the previous three-month period.
With the United States still needing to release its GDP figures for Q3 2025, the present Group of Seven economic leaderboard display:
- The French economy: 0.5 percent expansion
- UK: 0.1 percent
- Canada: 0.1 percent (preliminary figure)
- Germany: zero growth
- Italy: no growth
- Japan: negative 0.4 percent
Travel Shares Decline amid Diplomatic Rift with China
Alongside the GDP decline, Japan is dealing with an intensifying political dispute with China concerning Taiwan.
Shares in Japan's tourism and retail businesses have declined noticeably after China recommended its residents to avoid traveling to Japan.
This move by Chinese authorities heightened a diplomatic feud that was triggered by statements from Japan's recently appointed prime minister about the possibility of sending forces in the event of a potential Chinese attack on Taiwan.
The situation triggered a wave of sell-offs across Japan's tourism-related stocks.
- The Tokyo Disneyland operator stock dropped by 5.7%
- Isetan Mitsukoshi plummeted by 11.3 percent
- Japan Airlines declined by 3.75%
"The China-Japan dispute over Taiwan and Beijing's advisory advising against visits to Japan introduces near-term difficulties for consumer-facing sectors.
"Chinese visitors account for roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and tourism services particularly at risk."
GDP Contraction Breakdown
Japanese GDP dropped by 0.4 percent in the July-September quarter, as industrial exports were affected by tariffs imposed by the United States recently.
Overseas shipments were a major factor of the contraction, dropping by 1.2 percent compared with the previous quarter, and were 4.5% lower than a the same period last year.
Earlier this year, the US administration had threatened Japan with a new 25% tariff on its goods, which was later lowered to 15 percent when the two countries reached a trade agreement.
Private demand also fell, by 0.3 percent quarter-on-quarter.
On an annualized basis, Japan's real gross domestic product contracted by 1.8 percent in the quarter through September.
"The Japanese economic situation was strong in the initial six months of this year and the latest GDP data showed that growth is halted temporarily.
I expect Japan's economy to be back on a gradual recovery trend going forward."
The US administration has lately recognized the impact of tariffs on US consumers, reducing duties on imported food products including meat, tomatoes, beverages and fruits amid growing concerns about increasing costs.
Business Agenda
- 8am GMT: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
