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The Japanese economic system has experienced a contraction for the initial time in a year and a half, mainly caused by declining exports because of recent American tariffs.

Group of Seven Economic Rankings

Japan stands as the initial G7 country to announce an economic contraction in the previous quarter.

With the US still needing to publish its GDP data for Q3 2025, the current Group of Seven growth standings display:

• The French economy: 0.5 percent expansion
• United Kingdom: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• Germany: zero growth
• Italian economy: no growth
• Japanese economy: negative 0.4 percent

Tourism Shares Decline during Diplomatic Dispute with China

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

Shares in Japan's tourism and retail businesses have declined significantly after China urged its citizens to avoid visiting to Japan.

This action by Beijing intensified 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 potential Chinese invasion on Taiwan.

The situation caused a surge of selling across Japanese tourism-related shares.

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

"The China-Japan tension over Taiwan and Beijing's travel warning discouraging travel to Japan creates short-term challenges for consumer-facing sectors.

"Chinese visitors represent roughly 25% of Japan's inbound traffic, making department stores, luxury retail, and hospitality particularly at risk."

GDP Decline Details

Japan's GDP fell by 0.4 percent in the third quarter, as manufacturers' overseas shipments were impacted by tariffs imposed by the United States recently.

Exports were a key factor of the contraction, dropping by 1.2% compared with the previous quarter, and were 4.5 percent lower than a year ago.

Earlier this year, the US administration had threatened Japan with a additional 25% tariff on its goods, which was later reduced to 15 percent when the two nations concluded a trade deal.

Consumer spending also declined, by 0.3% quarter-on-quarter.

On an annual basis, Japan's GDP shrank by 1.8% in the quarter through September.

"Japan's economy was solid in the first half of this year and the latest GDP data showed that momentum is paused for now.

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

The US administration has recently acknowledged the effect of tariffs on US consumers, lowering duties on food imports including meat, produce, coffee and fruits amid growing concerns about rising costs.

Business Calendar

• 8am GMT: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August