Japan's Economic Output Shrinks while Exports Face Impact by American Trade Duties
The Japanese economic system has experienced a drop for the first time in a year and a half, primarily driven by falling overseas shipments because of newly imposed US tariffs.
G7 Growth Rankings
The Japanese economy stands as the first G7 nation to disclose an GDP decline in the previous quarter.
With the US yet to release its GDP figures for Q3 2025, the present G7 economic standings display:
- The French economy: 0.5 percent quarterly growth
- United Kingdom: +0.1%
- Canada: 0.1 percent (preliminary figure)
- Germany: 0%
- Italian economy: 0%
- Japan: negative 0.4 percent
Tourism Shares Decline during Political Rift with China
Alongside the economic contraction, Japan is experiencing an growing diplomatic tension with China regarding Taiwan.
Shares in Japanese tourism and retail firms have declined significantly after China advised its citizens to refrain from traveling to Japan.
This decision by Beijing intensified a political dispute that was initiated by statements from Tokyo's recently appointed PM about the potential of deploying forces in the event of a hypothetical Chinese invasion on Taiwan.
The situation led to a surge of sell-offs across Japanese leisure shares.
- The Tokyo Disneyland operator stock dropped by 5.7%
- The department store chain plummeted by 11.3%
- The national carrier fell by 3.75%
"The ongoing dispute over Taiwan and Beijing's travel warning advising against visits to Japan creates near-term difficulties for retail and hospitality sectors.
"Chinese visitors account for roughly 25% of Japan's international visitors, making department stores, luxury retail, and tourism services particularly vulnerable."
Economic Contraction Breakdown
Japanese GDP fell by 0.4 percent in the July-September quarter, as industrial exports were impacted by duties imposed by the United States recently.
Overseas shipments were a key factor of the contraction, dropping by 1.2 percent compared with the previous quarter, and were 4.5% lower than a year ago.
Earlier this year, the American government had threatened Japan with a new 25 percent tariff on its goods, which was later reduced to 15 percent when the two countries concluded a trade deal.
Consumer spending also declined, by 0.3 percent quarter-on-quarter.
On an annualized basis, Japan's real gross domestic product contracted by 1.8% in the quarter through September.
"Japan's economy was solid in the first half of this year and the latest GDP data showed that momentum is halted for now.
I expect Japan's economy to be returning on a gradual growth trend going forward."
The US administration has lately recognized the impact of tariffs on Americans, reducing tariffs on food imports including meat, produce, beverages and fruits amid growing concerns about rising costs.
Economic Calendar
- 8am GMT: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
