The Japanese Economic Output Shrinks as Overseas Sales Suffer by US Trade Duties

Japan's economy has recorded a decline for the initial time in a year and a half, mainly caused by falling exports due to recent US tariffs.

G7 Growth Standings

The Japanese economy stands as the initial Group of Seven country to announce an economic contraction in the most recent quarter.

As the US yet to publish its gross domestic product data for Q3 2025, the current Group of Seven economic rankings show:

• France: 0.5 percent quarterly growth
• United Kingdom: 0.1 percent
• Canadian economy: 0.1 percent (preliminary figure)
• German economy: 0%
• Italy: no growth
• Japan: -0.4%

Tourism Shares Slump during Diplomatic Rift with Beijing

In addition to the economic contraction, Japan is experiencing an growing diplomatic tension with China concerning Taiwan.

Stocks in Japanese travel and retail companies have declined noticeably after China recommended its residents to avoid visiting to Japan.

This action by Chinese authorities heightened a political dispute that was sparked by comments from Japan's new prime minister about the potential of sending forces in the event of a potential Chinese attack on Taiwan.

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

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

"The China-Japan tension over Taiwan and Beijing's advisory advising against visits to Japan brings near-term headwinds for retail and hospitality sectors.

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

GDP Contraction Breakdown

Japan's gross domestic product declined by 0.4 percent in the third quarter, as manufacturers' exports were affected by tariffs imposed by the United States this year.

Overseas shipments were a primary factor of the decline, dropping by 1.2% compared with the April-June quarter, and were 4.5% lower than a year ago.

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

Consumer spending also fell, by 0.3 percent quarter-on-quarter.

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

"Japan's economy was strong in the first half of this year and today's GDP figures showed that momentum is halted for now.

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

The White House has lately acknowledged the effect of tariffs on Americans, reducing tariffs on food imports including meat, produce, coffee and fruits amid increasing concerns about rising costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August