The Japanese Economy Declines as Overseas Sales Suffer by American Trade Duties
Japan's economy has recorded a contraction for the first time in six quarters, largely caused by weakening overseas shipments due to newly imposed American tariffs.
G7 Economic Leaderboard
Japan has become the first Group of Seven country to disclose an output shrinkage in the latest three-month period.
As the United States yet to release its GDP data for Q3 2025, the current G7 growth standings show:
- The French economy: +0.5% expansion
- UK: 0.1 percent
- Canada: 0.1 percent (provisional estimate)
- German economy: zero growth
- Italy: no growth
- Japan: -0.4%
Tourism Shares Slump during Political Rift with China
Alongside the GDP decline, Japan is experiencing an growing political dispute with China concerning Taiwan.
Shares in Japan's travel and retail firms have dropped noticeably after China urged its citizens to refrain from traveling to Japan.
This decision by Chinese authorities escalated a political dispute that was sparked by remarks from Japan's recently appointed PM about the possibility of deploying troops in the event of a hypothetical Chinese attack on Taiwan.
The situation triggered a wave of sell-offs across Japanese tourism-related stocks.
- Oriental Land shares dropped by 5.7%
- Isetan Mitsukoshi plummeted by 11.3%
- Japan Airlines declined by 3.75 percent
"The ongoing tension over Taiwan and China's travel warning advising against travel to Japan creates short-term headwinds for retail and hospitality sectors.
"Chinese visitors account for roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and hospitality especially vulnerable."
Economic Decline Breakdown
Japanese gross domestic product declined by 0.4% in the July-September quarter, as manufacturers' exports were hit by tariffs levied by the US this year.
Overseas shipments were a key factor of the decline, falling 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 additional 25% tariff on its goods, which was later lowered to 15 percent when the two nations concluded a trade agreement.
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% in the three months through September.
"Japan's economy was strong in the initial six months of this year and the latest GDP data showed that momentum is paused temporarily.
I anticipate Japan's economy to be back on a gradual growth trend going forward."
The US administration has lately acknowledged the impact of tariffs on Americans, reducing duties on imported food products including meat, tomatoes, beverages and bananas amid growing concerns about increasing costs.
Business Agenda
- 8am GMT: Switzerland GDP report for Q3
- 3pm GMT: US construction spending data for August
