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Japan's economy has shown a contraction for the first time in six quarters, mainly caused by declining overseas shipments as a result of newly imposed American tariffs.

G7 Growth Leaderboard

Japan stands as the first G7 country to report an economic contraction in the most recent quarter.

With the US yet to release its gross domestic product data for Q3 2025, the present Group of Seven economic standings show:

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

Travel Stocks Decline amid Diplomatic Dispute with China

Alongside the GDP decline, Japan is experiencing an intensifying diplomatic conflict with China regarding Taiwan.

Stocks in Japanese travel and consumer companies have declined sharply after China urged its nationals to refrain from traveling to Japan.

This action by Chinese authorities intensified a diplomatic feud that was sparked by statements from Japan's new prime minister about the potential of sending troops in the case of a potential Chinese invasion on Taiwan.

The development triggered a wave of selling across Japanese leisure shares.

• The Tokyo Disneyland operator shares fell by 5.7%
• The department store chain plummeted by 11.3%
• Japan Airlines declined by 3.75 percent

"The China-Japan tension over Taiwan and China's travel warning discouraging travel to Japan introduces near-term difficulties for consumer-facing sectors.

"Chinese visitors represent roughly 25 percent of Japan's international visitors, making retail outlets, high-end shopping, and hospitality especially vulnerable."

GDP Decline Breakdown

Japanese gross domestic product dropped by 0.4% in the July-September quarter, as industrial exports were hit by duties imposed by the US recently.

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

Earlier this year, the US administration had proposed Japan with a new 25 percent tariff on its goods, which was later reduced to 15 percent when the two nations concluded a trade deal.

Private demand also declined, by 0.3 percent compared to the previous quarter.

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

"Japan's economy was stable in the initial six months of this year and the latest GDP figures showed that growth is halted for now.

I anticipate Japan's economy to be back on a gradual recovery trend going forward."

The US administration has recently acknowledged the effect of tariffs on US consumers, reducing duties on food imports including beef, produce, beverages and fruits amid increasing concerns about rising costs.

Business Calendar

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