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Japan's economy has recorded a drop for the first time in six quarters, largely driven by weakening exports as a result of newly imposed US tariffs.

Group of Seven Growth Rankings

The Japanese economy stands as the first G7 nation to report an economic contraction in the previous three-month period.

As the US yet to publish its gross domestic product data for Q3 2025, the present G7 economic rankings show:

• France: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canada: +0.1% (preliminary figure)
• German economy: zero growth
• Italy: no growth
• Japanese economy: -0.4%

Travel Stocks Decline during Diplomatic Dispute with Beijing

Alongside the economic contraction, Japan is facing an intensifying political dispute with China regarding Taiwan.

Shares in Japan's tourism and retail companies have declined sharply after China advised its citizens to refrain from visiting to Japan.

This decision by Beijing intensified a diplomatic feud that was sparked by statements from Japan's new PM about the potential of deploying forces in the case of a potential Chinese attack on Taiwan.

The situation triggered a wave of selling across Japanese leisure shares.

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

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

"Chinese visitors represent roughly 25% of Japan's inbound traffic, making retail outlets, high-end shopping, and hospitality especially vulnerable."

GDP Contraction Details

Japan's gross domestic product declined by 0.4 percent in the third quarter, as manufacturers' exports were affected by tariffs levied by the US recently.

Exports were a primary driver of the contraction, falling 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 additional 25% tariff on its goods, which was later lowered to 15% when the two countries concluded a trade agreement.

Consumer spending also fell, by 0.3% compared to the previous 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 strong in the first half of this year and today's GDP data showed that growth is paused for now.

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

The US administration has recently acknowledged the effect of tariffs on US consumers, reducing tariffs on food imports including meat, produce, beverages and bananas amid increasing concerns about rising costs.

Economic Agenda

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