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Japan's economy has recorded a drop for the initial time in a year and a half, primarily caused by declining overseas shipments as a result of recent American tariffs.

G7 Growth Rankings

Japan stands as the first G7 nation to disclose an output shrinkage in the previous quarter.

As the United States still needing to publish its gross domestic product figures for Q3 2025, the current Group of Seven growth leaderboard indicate:

• The French economy: 0.5 percent expansion
• UK: 0.1 percent
• Canadian economy: 0.1 percent (provisional estimate)
• German economy: 0%
• Italy: 0%
• Japanese economy: negative 0.4 percent

Tourism Stocks Decline during Diplomatic Rift with Beijing

In addition to the GDP decline, Japan is dealing with an growing diplomatic tension with China regarding Taiwan.

Stocks in Japan's travel and consumer firms have fallen sharply after China recommended its nationals to refrain from visiting to Japan.

This move by Chinese authorities intensified a diplomatic feud that was sparked by comments from Tokyo's recently appointed PM about the possibility of deploying troops in the case of a hypothetical Chinese attack on Taiwan.

The development triggered a surge of sell-offs across Japanese leisure shares.

• Oriental Land stock fell by 5.7%
• The department store chain tumbled by 11.3%
• The national carrier declined by 3.75%

"The China-Japan dispute over Taiwan and Beijing's advisory advising against visits to Japan introduces near-term challenges for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's inbound traffic, making department stores, luxury retail, and tourism services particularly vulnerable."

GDP Contraction Breakdown

Japanese gross domestic product fell by 0.4% in the third quarter, as manufacturers' exports were impacted by tariffs imposed by the US this year.

Exports were a primary driver of the contraction, dropping by 1.2 percent compared with the April-June quarter, and were 4.5% lower than a year ago.

Earlier this year, the American government had proposed Japan with a additional 25% tariff on its goods, which was later lowered to 15 percent when the two countries reached a trade agreement.

Private demand also fell, by 0.3 percent 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 stable in the first half of this year and the latest GDP figures showed that growth is paused for now.

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

The US administration has recently recognized the effect of tariffs on US consumers, lowering duties on imported food products including beef, produce, beverages and bananas amid increasing concerns about rising costs.

Economic Calendar

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