The Japanese Economy Contracts while Exports Face Impact by US Trade Duties
Japan's economy has recorded a decline for the first time in six quarters, largely caused by weakening overseas shipments as a result of recent American trade duties.
G7 Growth Standings
The Japanese economy has become the initial G7 economy to report an economic contraction in the latest three-month period.
With the United States yet to publish its GDP data for Q3 2025, the current G7 economic leaderboard show:
- The French economy: +0.5% expansion
- UK: 0.1 percent
- Canada: 0.1 percent (provisional estimate)
- German economy: 0%
- Italy: 0%
- Japan: negative 0.4 percent
Tourism Stocks Slump during Political Rift with China
Alongside the economic contraction, Japan is dealing with an growing diplomatic tension with China regarding Taiwan.
Shares in Japanese travel and consumer firms have dropped noticeably after China advised its citizens to refrain from visiting to Japan.
This decision by Beijing intensified a diplomatic feud that was triggered by comments from Tokyo's new prime minister about the potential of deploying troops in the event of a potential Chinese invasion on Taiwan.
The situation caused a wave of sell-offs across Japanese leisure shares.
- Oriental Land stock fell by 5.7%
- The department store chain plummeted by 11.3%
- The national carrier fell by 3.75%
"The ongoing tension over Taiwan and China's travel warning advising against travel to Japan introduces near-term difficulties for retail and hospitality sectors.
"Tourists from China represent roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and hospitality especially vulnerable."
Economic Contraction Details
Japanese gross domestic product dropped by 0.4 percent in the third quarter, as manufacturers' exports were hit by tariffs imposed by the United States this year.
Overseas shipments were a key driver of the decline, dropping by 1.2 percent 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 new 25% tariff on its products, which was later reduced to 15 percent when the two nations reached a trade agreement.
Private demand also fell, by 0.3 percent quarter-on-quarter.
On an annual basis, Japan's GDP shrank by 1.8 percent in the quarter through September.
"The Japanese economic situation was solid in the initial six months of this year and today's GDP figures showed that growth is paused for now.
I expect Japan's economy to be returning on a moderate growth trend going forward."
The White House has recently acknowledged the effect of tariffs on Americans, lowering duties on imported food products including beef, produce, coffee and bananas amid growing concerns about rising costs.
Economic Calendar
- 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
