Japan's Economy Declines while Overseas Sales Are Hit by American Tariffs

Japan's economy has shown a contraction for the first time in six quarters, primarily caused by declining exports due to newly imposed US tariffs.

Group of Seven Economic Leaderboard

Japan has become the initial G7 country to disclose an economic contraction in the previous quarter.

As the United States yet to release its gross domestic product data for Q3 2025, the present Group of Seven economic standings show:

• The French economy: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canada: +0.1% (provisional estimate)
• Germany: zero growth
• Italian economy: 0%
• Japan: negative 0.4 percent

Tourism Shares Slump amid Diplomatic Rift with China

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

Stocks in Japanese travel and retail companies have dropped noticeably after China recommended its residents to avoid traveling to Japan.

This action by Chinese authorities escalated a political dispute that was triggered by comments from Japan's recently appointed prime minister about the potential of deploying troops in the event of a hypothetical Chinese attack on Taiwan.

The situation triggered a wave of selling across Japanese tourism-related shares.

• Oriental Land stock dropped by 5.7%
• Isetan Mitsukoshi tumbled by 11.3%
• The national carrier declined by 3.75%

"The ongoing tension over Taiwan and Beijing's advisory advising against visits to Japan brings near-term challenges for consumer-facing sectors.

"Chinese visitors represent roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and hospitality particularly at risk."

GDP Contraction Breakdown

Japan's GDP dropped by 0.4 percent in the July-September quarter, as industrial exports were affected by tariffs imposed by the United States recently.

Exports were a key factor of the decline, dropping by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a year ago.

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

Private demand also declined, by 0.3% compared to the previous quarter.

On an annual basis, Japan's real gross domestic product 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 data showed that momentum is halted for now.

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

The US administration has recently acknowledged the effect of tariffs on Americans, reducing duties on food imports including meat, produce, coffee and fruits amid growing concerns about increasing costs.

Business Calendar

• 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August