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Japan's economy has shown a decline for the initial time in six quarters, largely caused by weakening exports because of newly imposed American tariffs.

Group of Seven Growth Leaderboard

The Japanese economy stands as the initial G7 economy to disclose an output shrinkage in the most recent three-month period.

As the United States yet to publish its GDP figures for Q3 2025, the current G7 growth standings display:

• The French economy: 0.5 percent expansion
• UK: 0.1 percent
• Canada: +0.1% (provisional estimate)
• Germany: zero growth
• Italian economy: no growth
• Japan: -0.4%

Tourism Stocks Decline during Diplomatic Rift with China

In addition to the GDP decline, Japan is facing an intensifying political tension with China concerning Taiwan.

Shares in Japanese tourism and consumer firms have declined noticeably after China advised its residents to avoid visiting to Japan.

This decision by Beijing heightened a diplomatic feud that was sparked by comments from Tokyo's new PM about the potential of sending troops in the event of a hypothetical Chinese invasion on Taiwan.

The situation caused a wave of sell-offs across Japan's tourism-related shares.

• The Tokyo Disneyland operator shares dropped by 5.7%
• The department store chain tumbled by 11.3%
• The national carrier fell by 3.75%

"The ongoing tension over Taiwan and Beijing's travel warning advising against visits to Japan introduces near-term difficulties for consumer-facing sectors.

"Tourists from China account for roughly 25 percent of Japan's international visitors, making department stores, luxury retail, and tourism services especially at risk."

Economic Decline Details

Japanese GDP fell by 0.4% in the third quarter, as manufacturers' overseas shipments were impacted by duties levied by the US recently.

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

Earlier this year, the American government had threatened Japan with a new 25% tariff on its products, which was later lowered to 15% when the two countries concluded a trade agreement.

Consumer spending also declined, by 0.3% compared to the previous quarter.

On an annual basis, Japan's real gross domestic product shrank by 1.8 percent in the quarter through September.

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

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

The US administration has recently recognized the impact of tariffs on Americans, reducing duties on imported food products including meat, produce, beverages and bananas amid increasing concerns about increasing costs.

Economic Agenda

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