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Japan's economy has recorded a drop for the initial time in six quarters, primarily caused by weakening exports because of newly imposed US tariffs.

G7 Economic Standings

Japan has become the initial G7 economy to announce an GDP decline in the previous three-month period.

With the United States yet to release its GDP data for Q3 2025, the present G7 economic leaderboard show:

• The French economy: 0.5 percent quarterly growth
• UK: +0.1%
• Canada: 0.1 percent (preliminary figure)
• German economy: 0%
• Italy: no growth
• Japan: -0.4%

Travel Shares Decline amid Political Dispute with Beijing

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

Stocks in Japan's travel and retail companies have fallen significantly after China recommended its citizens to avoid visiting to Japan.

This decision by Beijing escalated a political dispute that was initiated by remarks from Tokyo's recently appointed prime minister about the possibility of sending forces in the case of a potential Chinese invasion on Taiwan.

The situation led to a wave of selling across Japan's tourism-related stocks.

• 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%

"The ongoing dispute over Taiwan and China's travel warning advising against visits to Japan introduces short-term challenges for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and hospitality particularly at risk."

Economic Decline Details

Japanese GDP declined by 0.4% in the July-September quarter, as industrial exports were affected by tariffs imposed by the United States recently.

Exports were a major factor of the decline, dropping by 1.2 percent compared with the April-June quarter, and were 4.5% lower than a the same period last year.

Previously, the US administration had proposed Japan with a new 25% tariff on its goods, which was later reduced to 15% when the two countries concluded a trade deal.

Consumer spending also declined, by 0.3 percent compared to the previous quarter.

On an annualized basis, Japan's GDP contracted by 1.8 percent 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 paused temporarily.

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

The US administration has recently acknowledged the effect of tariffs on US consumers, lowering duties on food imports including beef, tomatoes, beverages and bananas amid growing concerns about rising costs.

Economic Agenda

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