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Japan's economy has shown a decline for the first time in six quarters, largely caused by weakening overseas shipments due to newly imposed American tariffs.

Group of Seven Economic Standings

The Japanese economy has become the initial G7 economy to disclose an GDP decline in the previous quarter.

With the US yet to release its GDP data for Q3 2025, the present Group of Seven economic leaderboard display:

• The French economy: 0.5 percent expansion
• United Kingdom: +0.1%
• Canada: +0.1% (preliminary figure)
• Germany: zero growth
• Italy: no growth
• Japanese economy: negative 0.4 percent

Travel Shares Slump amid Diplomatic Rift with China

Alongside the economic contraction, Japan is facing an escalating diplomatic dispute with China regarding Taiwan.

Stocks in Japanese travel and consumer firms have dropped sharply after China advised its residents to avoid visiting to Japan.

This decision by Chinese authorities escalated a diplomatic feud that was sparked by remarks from Tokyo's new prime minister about the possibility of deploying forces in the case of a hypothetical Chinese invasion on Taiwan.

The development caused a wave of selling across Japanese tourism-related stocks.

• The Tokyo Disneyland operator shares dropped by 5.7%
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier fell by 3.75%

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

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making department stores, luxury retail, and tourism services especially vulnerable."

Economic Contraction Details

Japanese gross domestic product fell by 0.4% in the third quarter, as manufacturers' exports were impacted by duties imposed by the US this year.

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

Previously, the American government had threatened Japan with a additional 25% tariff on its products, which was later reduced to 15 percent when the two nations reached a trade deal.

Private demand also declined, by 0.3 percent quarter-on-quarter.

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

"The Japanese economic situation was strong in the first half of this year and today's GDP figures showed that growth is halted for now.

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

The US administration has lately recognized the impact of tariffs on US consumers, lowering tariffs on imported food products including beef, tomatoes, beverages and fruits amid increasing concerns about rising costs.

Economic Calendar

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August