The Japanese Economy Contracts while Exports Are Hit by US Trade Duties

Japan's economy has shown a drop for the initial time in six quarters, largely driven by weakening exports due to newly imposed US trade duties.

G7 Economic Standings

The Japanese economy has become the first Group of Seven country to announce an economic contraction in the previous quarter.

With the United States still needing to publish its GDP figures for Q3 2025, the present G7 growth rankings show:

• The French economy: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (preliminary figure)
• German economy: zero growth
• Italy: no growth
• Japanese economy: -0.4%

Tourism Shares Decline amid Diplomatic Rift with Beijing

Alongside the GDP decline, Japan is experiencing an intensifying political conflict with China concerning Taiwan.

Stocks in Japan's travel and retail companies have fallen sharply after China recommended its nationals to avoid traveling to Japan.

This move by Beijing escalated a political dispute that was initiated by remarks from Tokyo's new prime minister about the potential of sending troops in the case of a hypothetical Chinese invasion on Taiwan.

The situation caused a surge of selling across Japan's tourism-related stocks.

• Oriental Land shares dropped by 5.7 percent
• The department store chain tumbled by 11.3 percent
• Japan Airlines declined by 3.75%

"The China-Japan dispute over Taiwan and China's travel warning discouraging travel to Japan introduces near-term difficulties for consumer-facing sectors.

"Chinese visitors account for roughly 25% of Japan's international visitors, making department stores, luxury retail, and hospitality particularly at risk."

Economic Contraction Details

Japanese GDP declined by 0.4% in the July-September quarter, as manufacturers' exports were affected by duties imposed by the United States recently.

Overseas shipments were a major driver of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.

Earlier this year, the American government had threatened Japan with a new 25 percent tariff on its goods, which was later reduced to 15 percent when the two nations reached a trade agreement.

Private demand also fell, by 0.3 percent compared to the previous quarter.

On an annualized basis, Japan's real gross domestic product contracted by 1.8% in the quarter through September.

"Japan's economy was strong 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 back on a gradual growth trend going forward."

The White House has recently acknowledged the impact of tariffs on Americans, reducing tariffs on imported food products including meat, produce, beverages and fruits amid increasing concerns about increasing costs.

Economic Calendar

• 8am GMT: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August