The Japanese Economic Output Contracts while Exports Are Hit by US Trade Duties
Japan's economy has recorded a contraction for the first time in a year and a half, largely caused by weakening overseas shipments as a result of newly imposed US trade duties.
Group of Seven Growth Leaderboard
The Japanese economy has become the first Group of Seven economy to report an economic contraction in the previous quarter.
As the United States still needing to publish its gross domestic product figures for Q3 2025, the present Group of Seven economic rankings show:
- The French economy: 0.5 percent quarterly growth
- UK: +0.1%
- Canada: 0.1 percent (provisional estimate)
- German economy: 0%
- Italy: 0%
- Japanese economy: negative 0.4 percent
Tourism Stocks Slump amid Political Rift with Beijing
In addition to the GDP decline, Japan is experiencing an escalating diplomatic conflict with China concerning Taiwan.
Stocks in Japan's travel and consumer firms have dropped significantly after China recommended its residents to refrain from visiting to Japan.
This action by Beijing escalated a political dispute that was sparked by statements from Tokyo's new PM about the potential of deploying forces in the event of a potential Chinese attack on Taiwan.
The situation led to a wave of sell-offs across Japan's leisure shares.
- Oriental Land shares fell by 5.7%
- The department store chain tumbled by 11.3 percent
- The national carrier fell by 3.75%
"The China-Japan dispute over Taiwan and Beijing's advisory discouraging visits to Japan introduces near-term headwinds for retail and hospitality sectors.
"Chinese visitors represent roughly 25 percent of Japan's international visitors, making department stores, luxury retail, and hospitality especially at risk."
Economic Contraction Breakdown
Japan's gross domestic product fell by 0.4% in the third quarter, as industrial overseas shipments were impacted by duties imposed by the United States this year.
Exports were a major factor of the contraction, falling by 1.2 percent 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 percent tariff on its products, which was later lowered to 15% when the two countries reached a trade deal.
Private demand also declined, by 0.3% compared to the previous quarter.
On an annual basis, Japan's GDP shrank by 1.8 percent in the quarter through September.
"Japan's economy was stable in the first half of this year and the latest GDP data showed that momentum is paused temporarily.
I expect Japan's economy to be returning on a moderate recovery trend going forward."
The White House has lately acknowledged the impact of tariffs on US consumers, lowering tariffs on food imports including beef, produce, beverages and bananas amid increasing concerns about increasing costs.
Economic Agenda
- 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
- 3pm GMT: US construction spending data for August
