The Japanese Economy Declines while Exports Suffer by US Tariffs
Japan's economy has recorded a contraction for the first time in a year and a half, largely driven by weakening overseas shipments as a result of newly imposed US tariffs.
Group of Seven Growth Standings
The Japanese economy stands as the first Group of Seven economy to announce an output shrinkage in the previous three-month period.
With the US still needing to release its GDP data for Q3 2025, the present Group of Seven growth standings display:
- The French economy: +0.5% expansion
- United Kingdom: 0.1 percent
- Canadian economy: +0.1% (preliminary figure)
- Germany: 0%
- Italian economy: 0%
- Japanese economy: -0.4%
Tourism Shares Decline during Diplomatic Rift with China
In addition to the economic contraction, Japan is dealing with an escalating political dispute with China regarding Taiwan.
Shares in Japan's travel and consumer firms have dropped sharply after China advised its residents to avoid traveling to Japan.
This action by Chinese authorities intensified a diplomatic feud that was sparked by comments from Tokyo's new PM about the potential of deploying troops in the case of a potential Chinese invasion on Taiwan.
The situation caused a surge of selling across Japan's leisure shares.
- The Tokyo Disneyland operator shares fell by 5.7 percent
- Isetan Mitsukoshi tumbled by 11.3 percent
- Japan Airlines fell by 3.75 percent
"The ongoing dispute over Taiwan and China's travel warning discouraging travel to Japan creates near-term headwinds for consumer-facing sectors.
"Tourists from China account for roughly 25% of Japan's inbound traffic, making retail outlets, high-end shopping, and hospitality particularly at risk."
Economic Decline Breakdown
Japanese GDP dropped by 0.4% in the July-September quarter, as industrial exports were hit by duties imposed by the US recently.
Exports were a primary driver of the contraction, falling by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.
Earlier this year, the US administration had proposed 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.
Private demand also fell, by 0.3% quarter-on-quarter.
On an annualized basis, Japan's GDP contracted by 1.8 percent in the quarter through September.
"Japan's economy was stable in the initial six months of this year and the latest GDP data showed that growth is paused for now.
I anticipate Japan's economy to be returning on a gradual recovery trend going forward."
The White House has recently recognized the impact of tariffs on US consumers, reducing duties on food imports including meat, produce, beverages and fruits amid increasing concerns about rising costs.
Economic Calendar
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
