🔗 Share this article

Japan's economy has shown a contraction for the first time in six quarters, largely caused by declining overseas shipments because of newly imposed American tariffs.

Group of Seven Economic Leaderboard

The Japanese economy stands as the initial G7 economy to announce an output shrinkage in the previous three-month period.

With the US yet to release its GDP data for the third quarter, the present G7 growth leaderboard show:

• The French economy: +0.5% expansion
• UK: 0.1 percent
• Canadian economy: 0.1 percent (provisional estimate)
• Germany: zero growth
• Italy: no growth
• Japanese economy: -0.4%

Tourism Stocks Slump during Political Dispute with China

Alongside the GDP decline, Japan is experiencing an escalating diplomatic dispute with China concerning Taiwan.

Shares in Japanese travel and consumer businesses have dropped sharply after China advised its nationals to avoid visiting to Japan.

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

The situation led to a surge of sell-offs across Japan's leisure stocks.

• The Tokyo Disneyland operator shares dropped by 5.7%
• Isetan Mitsukoshi tumbled by 11.3%
• Japan Airlines declined by 3.75 percent

"The ongoing dispute over Taiwan and Beijing's travel warning discouraging travel to Japan introduces short-term difficulties for consumer-facing sectors.

"Tourists from China represent roughly 25% of Japan's international visitors, making department stores, high-end shopping, and hospitality particularly vulnerable."

Economic Decline Details

Japan's GDP dropped by 0.4 percent in the third quarter, as industrial overseas shipments were hit by duties imposed by the United States this year.

Overseas shipments were a key factor 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.

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

Private demand also declined, by 0.3 percent quarter-on-quarter.

On an annualized basis, Japan's real gross domestic product shrank by 1.8% in the quarter through September.

"The Japanese economic situation was solid in the first half of this year and today's GDP figures showed that momentum is halted for now.

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

The US administration has lately acknowledged the impact of tariffs on US consumers, lowering duties on food imports including meat, produce, beverages and fruits amid growing concerns about rising costs.

Economic Agenda

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