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Japan's economy has experienced a drop for the initial time in six quarters, primarily driven by weakening exports because of recent American tariffs.

G7 Growth Standings

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

With the United States still needing to publish its gross domestic product data for Q3 2025, the present G7 economic rankings indicate:

• The French economy: 0.5 percent quarterly growth
• United Kingdom: 0.1 percent
• Canada: +0.1% (provisional estimate)
• Germany: zero growth
• Italian economy: no growth
• Japanese economy: -0.4%

Tourism Shares Decline during Diplomatic Dispute with China

Alongside the GDP decline, Japan is experiencing an escalating political tension with China concerning Taiwan.

Stocks in Japanese tourism and retail companies have dropped significantly after China recommended its citizens to avoid visiting to Japan.

This decision by Chinese authorities heightened a diplomatic feud that was sparked by statements from Japan's recently appointed PM about the possibility of deploying forces in the case of a hypothetical Chinese attack on Taiwan.

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

• The Tokyo Disneyland operator stock fell by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3 percent
• The national carrier fell by 3.75 percent

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

"Tourists from China account for roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and hospitality especially vulnerable."

Economic Contraction Details

Japanese GDP fell by 0.4 percent in the third quarter, as industrial overseas shipments were hit by duties imposed by the United States recently.

Exports were a major factor of the decline, dropping 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 goods, which was later reduced to 15% when the two countries reached a trade agreement.

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

On an annual basis, Japan's GDP contracted by 1.8 percent in the three months through September.

"Japan's economy was solid in the first half of this year and today's GDP data showed that growth is halted for now.

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

The White House has lately acknowledged the effect of tariffs on US consumers, lowering duties on food imports including beef, tomatoes, coffee and fruits amid growing concerns about rising costs.

Economic Agenda

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