Japan's Economy Declines while Overseas Sales Face Impact by US Trade Duties
The Japanese economic system has shown a drop for the first time in a year and a half, primarily caused by weakening exports due to recent American tariffs.
G7 Economic Standings
Japan has become the first Group of Seven economy to announce an economic contraction in the most recent three-month period.
With the United States yet to publish its GDP data for Q3 2025, the current Group of Seven economic standings display:
- France: 0.5 percent expansion
- UK: +0.1%
- Canada: +0.1% (preliminary figure)
- Germany: 0%
- Italy: 0%
- Japanese economy: negative 0.4 percent
Travel Stocks Decline amid Diplomatic Rift with China
Alongside the GDP decline, Japan is dealing with an growing political dispute with China regarding Taiwan.
Shares in Japan's travel and retail firms have declined sharply after China recommended its citizens to refrain from visiting to Japan.
This action by Chinese authorities intensified a political dispute that was triggered by statements from Tokyo's new prime minister about the possibility of sending troops in the event of a hypothetical Chinese invasion on Taiwan.
The situation caused a wave of selling across Japanese tourism-related stocks.
- The Tokyo Disneyland operator shares fell by 5.7 percent
- The department store chain tumbled by 11.3%
- Japan Airlines declined by 3.75%
"The ongoing dispute over Taiwan and Beijing's travel warning advising against travel to Japan introduces near-term headwinds for retail and hospitality sectors.
"Chinese visitors account for roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and tourism services particularly at risk."
Economic Decline Breakdown
Japanese gross domestic product fell by 0.4 percent in the third quarter, as manufacturers' exports were impacted by duties imposed by the US recently.
Exports were a key driver of the contraction, dropping by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a year ago.
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 nations concluded a trade deal.
Private demand also declined, by 0.3% compared to the previous quarter.
On an annual basis, Japan's real gross domestic product contracted by 1.8% in the three months through September.
"Japan's economy was solid in the first half of this year and today's GDP data showed that growth is paused for now.
I expect Japan's economy to be back on a moderate growth trend going forward."
The US administration has lately recognized the impact of tariffs on Americans, reducing duties on imported food products including meat, produce, coffee and fruits amid increasing concerns about increasing costs.
Business Calendar
- 8am GMT: Swiss GDP report for Q3
- 3pm GMT: US construction spending data for August