The Japanese Economy Contracts while Exports Are Hit by American Tariffs
Japan's economy has experienced a contraction for the initial time in a year and a half, largely driven by declining exports because of recent US trade duties.
G7 Economic Leaderboard
Japan has become the initial Group of Seven nation to announce an GDP decline in the previous quarter.
With the United States yet to publish its gross domestic product data for Q3 2025, the current Group of Seven economic leaderboard indicate:
- The French economy: +0.5% expansion
- UK: +0.1%
- Canadian economy: +0.1% (provisional estimate)
- German economy: 0%
- Italian economy: 0%
- Japan: negative 0.4 percent
Travel Stocks Decline amid Political Dispute with China
Alongside the GDP decline, Japan is experiencing an escalating political tension with China concerning Taiwan.
Stocks in Japan's tourism and retail businesses have fallen sharply after China urged its citizens to avoid traveling to Japan.
This action by Beijing heightened a political dispute that was sparked by statements from Japan's recently appointed prime minister about the potential of deploying forces in the case of a potential Chinese attack on Taiwan.
The situation led to a wave of sell-offs across Japanese leisure stocks.
- Oriental Land shares fell by 5.7%
- The department store chain plummeted by 11.3 percent
- Japan Airlines fell by 3.75%
"The China-Japan tension over Taiwan and Beijing's travel warning advising against visits to Japan creates short-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 hospitality particularly vulnerable."
Economic Decline Breakdown
Japanese gross domestic product declined by 0.4 percent in the third quarter, as industrial overseas shipments were impacted by duties imposed by the US recently.
Exports were a major driver of the decline, dropping by 1.2% 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 goods, which was later reduced 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 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 the latest GDP figures showed that momentum is halted temporarily.
I anticipate Japan's economy to be back on a moderate recovery trend going forward."
The White House has recently recognized the effect of tariffs on Americans, lowering duties on food imports including beef, produce, coffee and bananas amid increasing concerns about increasing costs.
Business Calendar
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
