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Japan's economy has shown a contraction for the first time in a year and a half, mainly caused by falling overseas shipments due to newly imposed US tariffs.

G7 Growth Standings

Japan stands as the first Group of Seven economy to report an output shrinkage in the previous three-month period.

With the US still needing to release its GDP data for Q3 2025, the present G7 economic leaderboard display:

• France: +0.5% expansion
• United Kingdom: 0.1 percent
• Canadian economy: 0.1 percent (preliminary figure)
• German economy: zero growth
• Italy: no growth
• Japanese economy: negative 0.4 percent

Tourism Shares Decline during Political Dispute with China

In addition to the economic contraction, Japan is dealing with an intensifying political dispute with China regarding Taiwan.

Shares in Japanese travel and consumer firms have declined significantly after China urged its citizens to avoid visiting to Japan.

This move by Chinese authorities escalated a political dispute that was sparked by remarks from Japan's recently appointed prime minister about the possibility of sending troops in the event of a potential Chinese invasion on Taiwan.

The situation caused a surge of selling across Japan's tourism-related stocks.

• Oriental Land stock fell by 5.7%
• Isetan Mitsukoshi plummeted by 11.3 percent
• The national carrier fell by 3.75 percent

"The China-Japan dispute over Taiwan and Beijing's travel warning advising against travel to Japan brings near-term headwinds for retail and hospitality sectors.

"Chinese visitors represent roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and tourism services particularly at risk."

Economic Contraction Details

Japanese gross domestic product dropped by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were hit by tariffs imposed by the United States recently.

Overseas shipments 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 US administration had proposed Japan with a additional 25 percent tariff on its goods, which was later lowered to 15 percent when the two nations reached a trade agreement.

Consumer spending also fell, by 0.3 percent quarter-on-quarter.

On an annualized basis, Japan's GDP shrank by 1.8 percent in the three months through September.

"Japan's economy was solid in the first half of this year and today's GDP data showed that momentum is paused for now.

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

The White House has lately recognized the effect of tariffs on US consumers, reducing duties on food imports including meat, tomatoes, beverages and fruits amid increasing concerns about rising costs.

Economic Calendar

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