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Japan's economy has recorded a decline for the initial time in six quarters, primarily driven by declining exports due to recent US trade duties.

G7 Growth Rankings

Japan has become the initial Group of Seven nation to announce an output shrinkage in the latest quarter.

With the US yet to release its gross domestic product figures for Q3 2025, the present G7 growth rankings display:

• France: 0.5 percent quarterly growth
• UK: +0.1%
• Canada: 0.1 percent (provisional estimate)
• German economy: zero growth
• Italian economy: no growth
• Japanese economy: -0.4%

Tourism Shares Decline amid Diplomatic Rift with China

In addition to the economic contraction, Japan is dealing with an growing political dispute with China regarding Taiwan.

Stocks in Japanese travel and retail firms have declined significantly after China advised its citizens to refrain from visiting to Japan.

This move by Chinese authorities heightened a political dispute that was triggered by comments from Japan's recently appointed prime minister about the possibility of sending forces in the case of a potential Chinese attack on Taiwan.

The situation caused a wave of selling across Japanese tourism-related shares.

• The Tokyo Disneyland operator stock fell by 5.7%
• The department store chain tumbled by 11.3%
• The national carrier declined by 3.75 percent

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

"Tourists from China account for roughly 25% of Japan's inbound traffic, making department stores, high-end shopping, and hospitality particularly vulnerable."

Economic Decline Details

Japanese GDP declined by 0.4 percent in the third quarter, as industrial overseas shipments were impacted by duties imposed by the United States this year.

Overseas shipments were a major driver of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a year ago.

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

Consumer spending also fell, by 0.3 percent quarter-on-quarter.

On an annual basis, Japan's GDP shrank by 1.8% 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 paused temporarily.

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

The White House has lately acknowledged the effect of tariffs on Americans, lowering duties on food imports including meat, produce, beverages and bananas amid growing concerns about rising costs.

Economic Agenda

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