The Japanese Economic Output Contracts while Exports Suffer by American Tariffs
Japan's economy has experienced a drop for the first time in a year and a half, mainly driven by falling overseas shipments because of recent American tariffs.
G7 Economic Rankings
The Japanese economy stands as the initial G7 country to report an GDP decline in the previous quarter.
As the US yet to publish its GDP data for Q3 2025, the present Group of Seven growth standings display:
- France: +0.5% expansion
- UK: 0.1 percent
- Canada: +0.1% (preliminary figure)
- Germany: zero growth
- Italy: 0%
- Japan: -0.4%
Tourism Stocks Slump during Diplomatic Rift with Beijing
Alongside the economic contraction, Japan is dealing with an escalating diplomatic tension with China concerning Taiwan.
Shares in Japan's travel and retail companies have dropped sharply after China urged its citizens to refrain from traveling to Japan.
This action by Chinese authorities heightened a diplomatic feud that was initiated by remarks from Tokyo's recently appointed prime minister about the possibility of sending forces in the case of a potential Chinese invasion on Taiwan.
The situation caused a wave of sell-offs across Japan's leisure shares.
- Oriental Land shares fell by 5.7 percent
- Isetan Mitsukoshi plummeted by 11.3 percent
- Japan Airlines declined by 3.75 percent
"The ongoing dispute over Taiwan and China's travel warning advising against travel to Japan brings near-term headwinds for retail and hospitality sectors.
"Chinese visitors represent roughly 25% of Japan's inbound traffic, making department stores, high-end shopping, and hospitality particularly at risk."
GDP Contraction Details
Japanese GDP dropped by 0.4% in the third quarter, as industrial overseas shipments were impacted by tariffs levied by the United States recently.
Overseas shipments were a major factor of the decline, dropping by 1.2% compared with the previous quarter, and were 4.5% lower than a the same period last year.
Previously, the US administration had threatened Japan with a additional 25% tariff on its products, which was later reduced to 15 percent when the two countries reached a trade deal.
Private demand also declined, by 0.3% quarter-on-quarter.
On an annualized basis, Japan's GDP shrank by 1.8% in the three months through September.
"The Japanese economic situation was solid in the initial six months of this year and today's GDP figures showed that momentum is paused temporarily.
I anticipate Japan's economy to be back on a moderate growth trend going forward."
The White House has recently acknowledged the effect of tariffs on US consumers, reducing duties on food imports including meat, tomatoes, beverages and fruits amid increasing concerns about rising costs.
Business Agenda
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
