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Japan's economy has experienced a contraction for the initial time in a year and a half, mainly driven by falling exports because of recent US tariffs.

G7 Growth Rankings

Japan has become the first Group of Seven economy to announce an output shrinkage in the most recent three-month period.

With the United States yet to publish its GDP figures for Q3 2025, the present Group of Seven economic leaderboard show:

• The French economy: 0.5 percent quarterly growth
• UK: 0.1 percent
• Canada: +0.1% (preliminary figure)
• Germany: zero growth
• Italy: no growth
• Japanese economy: -0.4%

Tourism Shares Decline amid Diplomatic Dispute with Beijing

Alongside the economic contraction, Japan is dealing with an intensifying political conflict with China concerning Taiwan.

Stocks in Japanese tourism and consumer firms have fallen noticeably after China urged its nationals to avoid traveling to Japan.

This action by Beijing heightened a diplomatic feud that was triggered by comments from Japan's recently appointed PM about the possibility of deploying troops in the event of a hypothetical Chinese invasion on Taiwan.

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

• The Tokyo Disneyland operator shares fell by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3%
• The national carrier fell by 3.75 percent

"The China-Japan dispute over Taiwan and Beijing's advisory discouraging travel to Japan introduces near-term challenges for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's inbound traffic, making retail outlets, high-end shopping, and hospitality especially at risk."

GDP Contraction Breakdown

Japanese gross domestic product fell by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were hit by tariffs levied by the United States this year.

Overseas shipments were a primary factor of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5% lower than a year ago.

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

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

On an annualized basis, Japan's real gross domestic product shrank by 1.8 percent in the three months through September.

"Japan's economy was solid in the first half of this year and the latest GDP figures showed that growth is halted for now.

I anticipate Japan's economy to be returning on a gradual recovery trend going forward."

The White House has recently recognized the effect of tariffs on US consumers, lowering duties on food imports including beef, tomatoes, beverages and fruits amid growing concerns about increasing costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August