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The Japanese economic system has experienced a drop for the initial time in six quarters, largely driven by declining exports due to newly imposed US tariffs.

Group of Seven Economic Leaderboard

Japan stands as the initial G7 nation to report an GDP decline in the previous three-month period.

As the United States yet to publish its GDP figures for Q3 2025, the current Group of Seven growth leaderboard show:

• The French economy: 0.5 percent expansion
• United Kingdom: +0.1%
• Canada: +0.1% (provisional estimate)
• German economy: 0%
• Italy: no growth
• Japanese economy: negative 0.4 percent

Tourism Shares Decline during Political Dispute with Beijing

In addition to the economic contraction, Japan is facing an growing diplomatic dispute with China concerning Taiwan.

Shares in Japan's tourism and retail businesses have fallen sharply after China urged its citizens to avoid visiting to Japan.

This action by Chinese authorities escalated a diplomatic feud that was sparked by comments from Japan's new PM about the potential of deploying forces in the case of a potential Chinese attack on Taiwan.

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

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

"The ongoing tension over Taiwan and China's travel warning advising against visits to Japan brings short-term headwinds for consumer-facing sectors.

"Chinese visitors represent roughly 25% of Japan's international visitors, making department stores, luxury retail, and hospitality particularly vulnerable."

GDP Decline Details

Japan's GDP declined by 0.4% in the third quarter, as industrial overseas shipments were hit by duties levied by the United States this year.

Exports were a key factor of the contraction, dropping by 1.2% compared with the previous quarter, and were 4.5% lower than a year ago.

Earlier this year, the US administration had threatened Japan with a new 25% tariff on its products, which was later lowered to 15% when the two countries concluded a trade agreement.

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

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

"The Japanese economic situation was stable in the initial six months of this year and the latest GDP data showed that momentum is paused for now.

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

The US administration has recently acknowledged the effect of tariffs on Americans, reducing tariffs on imported food products including beef, produce, beverages and bananas amid increasing concerns about increasing costs.

Economic Agenda

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