Japan's Economic Output Declines as Overseas Sales Suffer by US Trade Duties
Japan's economy has experienced a contraction for the first time in six quarters, mainly driven by falling overseas shipments due to newly imposed American tariffs.
Group of Seven Growth Rankings
Japan has become the first G7 nation to report an output shrinkage in the previous quarter.
With the United States still needing to release its GDP data for Q3 2025, the current Group of Seven growth rankings display:
- The French economy: +0.5% expansion
- UK: +0.1%
- Canadian economy: +0.1% (provisional estimate)
- German economy: 0%
- Italy: 0%
- Japan: -0.4%
Tourism Stocks Slump during Diplomatic Dispute with Beijing
In addition to the economic contraction, Japan is experiencing an escalating diplomatic conflict with China regarding Taiwan.
Stocks in Japan's travel and retail businesses have dropped noticeably after China urged its residents to refrain from visiting to Japan.
This action by Beijing escalated a political dispute that was triggered by comments from Tokyo's new PM about the potential of deploying troops in the event of a hypothetical Chinese attack on Taiwan.
The situation led to a wave of sell-offs across Japanese leisure shares.
- The Tokyo Disneyland operator shares fell by 5.7 percent
- The department store chain plummeted by 11.3%
- The national carrier fell by 3.75 percent
"The China-Japan dispute over Taiwan and Beijing's travel warning discouraging travel to Japan brings near-term challenges for retail and hospitality sectors.
"Tourists from China represent roughly 25% of Japan's international visitors, making department stores, high-end shopping, and hospitality particularly vulnerable."
Economic Decline Breakdown
Japanese GDP fell by 0.4 percent in the July-September quarter, as manufacturers' exports were affected by tariffs levied by the US this year.
Exports were a key factor of the decline, falling by 1.2% compared with the previous quarter, and were 4.5% lower than a year ago.
Previously, the US administration had threatened Japan with a new 25% tariff on its goods, which was later lowered to 15% when the two countries reached a trade agreement.
Private demand also declined, by 0.3 percent compared to the previous quarter.
On an annualized basis, Japan's real gross domestic product contracted by 1.8 percent in the quarter through September.
"Japan's economy was strong in the initial six months of this year and the latest GDP data showed that momentum is halted temporarily.
I expect Japan's economy to be back on a gradual growth trend going forward."
The White House has lately acknowledged the effect of tariffs on US consumers, lowering tariffs on imported food products 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
