Japan's Economy Declines as Overseas Sales Are Hit by US Trade Duties

The Japanese economic system has experienced a drop for the first time in six quarters, mainly caused by falling exports due to recent American trade duties.

Group of Seven Economic Standings

The Japanese economy has become the first G7 country to announce an economic contraction in the most recent three-month period.

As the US still needing to publish its gross domestic product data for Q3 2025, the current G7 economic rankings show:

• France: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (provisional estimate)
• German economy: 0%
• Italy: 0%
• Japanese economy: negative 0.4 percent

Travel Stocks Slump during Political Dispute with Beijing

In addition to the GDP decline, Japan is dealing with an growing diplomatic conflict with China concerning Taiwan.

Shares in Japan's tourism and consumer firms have declined significantly after China recommended its residents to refrain from traveling to Japan.

This move by Chinese authorities intensified a political dispute that was triggered by statements from Tokyo's recently appointed prime minister about the potential of deploying forces in the event of a potential Chinese attack on Taiwan.

The situation caused a surge of selling across Japanese leisure shares.

• Oriental Land shares dropped by 5.7%
• Isetan Mitsukoshi tumbled by 11.3%
• Japan Airlines fell by 3.75 percent

"The ongoing tension over Taiwan and China's advisory advising against visits to Japan creates short-term difficulties for consumer-facing sectors.

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

Economic Decline Details

Japan's gross domestic product dropped by 0.4 percent in the third quarter, as industrial exports were affected by tariffs levied by the US this year.

Overseas shipments were a primary driver 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 goods, which was later reduced to 15 percent when the two nations reached a trade agreement.

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

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

"The Japanese economic situation was solid in the first half of this year and today's GDP data showed that momentum is paused for now.

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

The White House has recently recognized the effect of tariffs on US consumers, reducing duties on imported food products including beef, produce, coffee and fruits amid growing concerns about rising costs.

Economic Agenda

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