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The Japanese economic system has recorded a contraction for the initial time in six quarters, largely driven by declining exports as a result of newly imposed American tariffs.

G7 Economic Rankings

Japan stands as the first G7 economy to disclose an economic contraction in the latest three-month period.

As the US yet to publish its gross domestic product figures for Q3 2025, the present G7 economic standings display:

• France: +0.5% expansion
• United Kingdom: +0.1%
• Canadian economy: 0.1 percent (preliminary figure)
• German economy: zero growth
• Italian economy: 0%
• Japanese economy: -0.4%

Travel Stocks Slump amid Diplomatic Rift with China

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

Shares in Japan's travel and retail companies have fallen significantly after China advised its citizens to refrain from visiting to Japan.

This action by Chinese authorities heightened a political dispute that was initiated by comments from Tokyo's new prime minister about the possibility of deploying forces in the case of a hypothetical Chinese invasion on Taiwan.

The development caused a wave of selling across Japanese leisure shares.

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

"The China-Japan dispute over Taiwan and Beijing's travel warning advising against visits to Japan brings near-term difficulties for consumer-facing sectors.

"Chinese visitors account for roughly 25 percent of Japan's inbound traffic, making department stores, luxury retail, and tourism services particularly vulnerable."

GDP Contraction Details

Japan's gross domestic product dropped by 0.4 percent in the third quarter, as manufacturers' exports were hit by tariffs imposed by the US this year.

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

Previously, the American government had proposed Japan with a new 25 percent tariff on its goods, which was later lowered to 15% when the two nations reached a trade deal.

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

On an annual basis, Japan's real gross domestic product shrank by 1.8 percent in the three months through September.

"Japan's economy was stable in the first half of this year and today's 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 US administration has recently acknowledged the impact of tariffs on US consumers, lowering duties on food imports including beef, produce, coffee and fruits amid growing concerns about increasing costs.

Economic Calendar

• 8am GMT: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August