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Japan's economy has recorded a drop for the initial time in a year and a half, primarily caused by declining exports due to recent US trade duties.

Group of Seven Economic Standings

Japan stands as the first Group of Seven economy to announce an GDP decline in the most recent three-month period.

With the United States yet to publish its gross domestic product figures for Q3 2025, the present Group of Seven growth standings display:

• France: 0.5 percent expansion
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (preliminary figure)
• Germany: 0%
• Italy: 0%
• Japanese economy: -0.4%

Travel Shares Slump during Diplomatic Rift with Beijing

In addition to the economic contraction, Japan is experiencing an escalating political tension with China regarding Taiwan.

Stocks in Japan's tourism and retail companies have declined noticeably after China urged its residents to refrain from visiting to Japan.

This move by Chinese authorities intensified a political dispute that was sparked by comments from Japan's new prime minister about the possibility of sending forces in the case of a potential Chinese attack on Taiwan.

The situation triggered a surge of selling across Japanese tourism-related shares.

• Oriental Land shares fell by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3 percent
• Japan Airlines declined by 3.75 percent

"The China-Japan dispute over Taiwan and China's advisory advising against visits to Japan creates short-term challenges for retail and hospitality sectors.

"Chinese visitors represent roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and hospitality particularly vulnerable."

GDP Decline Breakdown

Japanese gross domestic product declined by 0.4 percent in the third quarter, as manufacturers' overseas shipments were hit by duties levied by the United States recently.

Exports were a major factor of the decline, dropping by 1.2% compared with the previous quarter, and were 4.5% lower than a the same period last year.

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

Private demand also declined, by 0.3% compared to the previous 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 halted temporarily.

I anticipate Japan's economy to be returning on a gradual 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 rising costs.

Economic Calendar

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