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Japan's economy has recorded a decline for the initial time in six quarters, largely driven by falling overseas shipments due to recent US tariffs.

G7 Growth Rankings

The Japanese economy has become the first G7 nation to report an GDP decline in the latest quarter.

As the US yet to publish its GDP data for Q3 2025, the present Group of Seven economic leaderboard indicate:

• The French economy: +0.5% quarterly growth
• UK: +0.1%
• Canada: +0.1% (provisional estimate)
• German economy: 0%
• Italian economy: no growth
• Japanese economy: -0.4%

Travel Stocks Decline during Political Rift with Beijing

Alongside the economic contraction, Japan is facing an growing political conflict with China regarding Taiwan.

Stocks in Japanese travel and consumer businesses have fallen noticeably after China urged its citizens to avoid traveling to Japan.

This decision by Chinese authorities heightened a political dispute that was initiated by comments from Tokyo's recently appointed prime minister about the possibility of deploying troops in the event of a hypothetical Chinese attack on Taiwan.

The development caused a wave of selling across Japan's tourism-related stocks.

• Oriental Land shares fell by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3 percent
• Japan Airlines fell by 3.75 percent

"The ongoing tension over Taiwan and China's travel warning discouraging visits to Japan introduces near-term headwinds for retail and hospitality sectors.

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services especially vulnerable."

GDP Contraction Breakdown

Japanese gross domestic product declined by 0.4% in the third quarter, as industrial exports were affected by tariffs imposed by the United States this year.

Exports were a primary driver of the decline, falling by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

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

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

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

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

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

The White House has recently acknowledged the effect of tariffs on Americans, lowering duties on imported food products including meat, tomatoes, beverages and fruits amid increasing concerns about rising costs.

Business Agenda

• 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August