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The Japanese economic system has experienced a contraction for the initial time in a year and a half, mainly driven by declining exports as a result of newly imposed American tariffs.

Group of Seven Growth Leaderboard

Japan has become the initial Group of Seven country to disclose an economic contraction in the most recent quarter.

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

• France: 0.5 percent quarterly growth
• United Kingdom: 0.1 percent
• Canada: 0.1 percent (preliminary figure)
• German economy: 0%
• Italian economy: 0%
• Japan: negative 0.4 percent

Travel Shares Decline amid Diplomatic Rift with China

Alongside the economic contraction, Japan is dealing with an growing political dispute with China regarding Taiwan.

Stocks in Japanese tourism and consumer firms have fallen noticeably after China recommended its residents to avoid visiting to Japan.

This action by Beijing intensified a diplomatic feud that was triggered by statements from Japan's recently appointed prime minister about the potential of deploying forces in the event of a hypothetical Chinese invasion on Taiwan.

The situation triggered a wave of selling across Japan's tourism-related shares.

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

"The ongoing tension over Taiwan and China's advisory discouraging visits to Japan brings short-term difficulties for retail and hospitality sectors.

"Tourists from China represent roughly 25% of Japan's international visitors, making retail outlets, luxury retail, and tourism services especially at risk."

Economic Contraction Details

Japan's GDP dropped by 0.4 percent in the third quarter, as industrial exports were impacted by tariffs levied by the US this year.

Overseas shipments were a major 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 proposed Japan with a additional 25 percent tariff on its products, which was later reduced to 15 percent when the two countries reached a trade agreement.

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

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

"The Japanese economic situation was stable in the initial six months of this year and today's GDP data showed that momentum is paused temporarily.

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

The White House has recently acknowledged the effect of tariffs on US consumers, lowering duties on food imports including beef, produce, beverages and bananas amid growing concerns about increasing costs.

Business Calendar

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