The Japanese Economy Declines while Exports Suffer by American Trade Duties
Japan's economy has shown a contraction for the initial time in six quarters, largely caused by declining exports due to newly imposed US trade duties.
Group of Seven Growth Leaderboard
The Japanese economy has become the initial G7 country to report an economic contraction in the most recent three-month period.
With the US yet to publish its GDP figures for Q3 2025, the current G7 growth leaderboard indicate:
- France: +0.5% expansion
- United Kingdom: 0.1 percent
- Canada: +0.1% (preliminary figure)
- Germany: zero growth
- Italy: 0%
- Japan: negative 0.4 percent
Travel Stocks Decline amid Diplomatic Rift with Beijing
In addition to the economic contraction, Japan is dealing with an escalating political tension with China concerning Taiwan.
Stocks in Japanese travel and retail businesses have dropped sharply after China urged its residents to avoid traveling to Japan.
This move by Chinese authorities intensified a political dispute that was triggered by statements from Tokyo's recently appointed prime minister about the potential of deploying forces in the event of a potential Chinese attack on Taiwan.
The development led to a surge of selling across Japanese leisure stocks.
- The Tokyo Disneyland operator shares fell by 5.7%
- Isetan Mitsukoshi plummeted by 11.3 percent
- The national carrier fell by 3.75 percent
"The China-Japan dispute over Taiwan and China's travel warning advising against travel to Japan creates short-term challenges for retail and hospitality sectors.
"Tourists from China represent roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and tourism services especially vulnerable."
GDP Contraction Breakdown
Japan's gross domestic product dropped by 0.4 percent in the July-September quarter, as manufacturers' exports were hit by tariffs imposed by the United States recently.
Overseas shipments were a key driver of the contraction, dropping by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a year ago.
Earlier this year, the US administration had threatened Japan with a additional 25 percent tariff on its products, which was later reduced to 15% when the two nations concluded a trade agreement.
Private demand also declined, by 0.3 percent quarter-on-quarter.
On an annualized basis, Japan's GDP shrank by 1.8 percent in the quarter through September.
"Japan's economy was strong in the first half of this year and today's GDP data showed that momentum is halted for now.
I anticipate Japan's economy to be back on a gradual growth trend going forward."
The US administration has lately acknowledged the impact of tariffs on US consumers, lowering duties on imported food products including meat, tomatoes, coffee and bananas amid growing concerns about rising costs.
Economic Calendar
- 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
- 3pm GMT: US construction spending data for August
