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The Japanese economic system has shown a decline for the initial time in six quarters, largely driven by weakening overseas shipments due to recent American tariffs.

G7 Growth Leaderboard

Japan stands as the first G7 economy to announce an economic contraction in the most recent three-month period.

As the US still needing to release its gross domestic product data for Q3 2025, the present G7 growth standings display:

• France: 0.5 percent quarterly growth
• United Kingdom: 0.1 percent
• Canada: 0.1 percent (preliminary figure)
• Germany: zero growth
• Italian economy: 0%
• Japanese economy: -0.4%

Travel Shares Slump amid Political Rift with Beijing

In addition to the economic contraction, Japan is experiencing an intensifying political tension with China regarding Taiwan.

Stocks in Japanese travel and retail companies have fallen noticeably after China urged its nationals to avoid visiting to Japan.

This decision by Chinese authorities escalated a diplomatic feud that was sparked by comments from Japan's new PM about the potential of deploying troops in the event of a hypothetical Chinese invasion on Taiwan.

The development led to a wave of sell-offs across Japan's leisure stocks.

• Oriental Land shares dropped by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3 percent
• The national carrier declined by 3.75 percent

"The China-Japan tension over Taiwan and Beijing's travel warning discouraging visits to Japan brings short-term difficulties for retail and hospitality sectors.

"Chinese visitors account for roughly 25 percent of Japan's international visitors, making retail outlets, high-end shopping, and tourism services particularly vulnerable."

Economic Contraction Details

Japanese GDP dropped by 0.4 percent in the third quarter, as industrial overseas shipments were hit by duties levied by the United States this year.

Exports were a primary factor of the contraction, dropping by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

Previously, the US administration had proposed Japan with a new 25 percent tariff on its goods, which was later lowered to 15 percent when the two countries reached a trade deal.

Private demand also fell, by 0.3 percent compared to the previous 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 for now.

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

The US administration has recently acknowledged the effect of tariffs on Americans, lowering duties on imported food products including beef, produce, coffee and bananas amid growing concerns about increasing costs.

Economic Calendar

• 8am GMT: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August