Japan's Economic Output Contracts as Exports Are Hit by American Tariffs

The Japanese economic system has experienced a decline for the initial time in a year and a half, primarily caused by weakening overseas shipments due to recent US trade duties.

Group of Seven Growth Rankings

Japan has become the first Group of Seven country to disclose an economic contraction in the most recent three-month period.

As the US yet to publish its gross domestic product figures for Q3 2025, the current Group of Seven growth rankings show:

• The French economy: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (provisional estimate)
• German economy: 0%
• Italian economy: 0%
• Japan: negative 0.4 percent

Travel Shares Decline amid Political Dispute with China

Alongside the GDP decline, Japan is experiencing an intensifying political tension with China regarding Taiwan.

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

This decision by Chinese authorities intensified a political dispute that was sparked by remarks from Tokyo's recently appointed prime minister about the possibility of deploying troops in the case of a potential Chinese attack on Taiwan.

The development led to a wave of selling across Japan's tourism-related shares.

• Oriental Land shares fell by 5.7%
• Isetan Mitsukoshi plummeted by 11.3 percent
• Japan Airlines fell by 3.75%

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

"Tourists from China represent roughly 25% of Japan's international visitors, making department stores, luxury retail, and hospitality particularly vulnerable."

Economic Contraction Details

Japanese GDP fell by 0.4 percent in the July-September quarter, as manufacturers' exports were impacted by duties levied by the US this year.

Overseas shipments were a key driver of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5% lower than a year ago.

Previously, the US administration had proposed Japan with a new 25% tariff on its products, which was later lowered to 15 percent when the two nations concluded a trade agreement.

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

On an annualized basis, Japan's GDP shrank by 1.8% in the three months through September.

"Japan's economy was solid in the first half of this year and the latest GDP figures showed that growth is paused temporarily.

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

The US administration has lately acknowledged the impact of tariffs on US consumers, lowering tariffs on imported food products including meat, produce, beverages and bananas amid growing concerns about rising costs.

Business Agenda

• 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
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