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The Japanese economic system has recorded a contraction for the first time in six quarters, mainly driven by weakening overseas shipments because of recent American trade duties.

G7 Economic Leaderboard

The Japanese economy stands as the initial G7 country to report an GDP decline in the most recent three-month period.

As the United States still needing to release its gross domestic product data for Q3 2025, the current G7 growth rankings show:

• France: +0.5% expansion
• UK: +0.1%
• Canada: 0.1 percent (preliminary figure)
• German economy: zero growth
• Italian economy: no growth
• Japanese economy: -0.4%

Travel Stocks Decline amid Diplomatic Rift with China

Alongside the GDP decline, Japan is dealing with an intensifying political dispute with China concerning Taiwan.

Shares in Japanese tourism and retail firms have declined noticeably after China advised its nationals to refrain from visiting to Japan.

This move by Beijing escalated a diplomatic feud that was triggered by comments from Tokyo's new prime minister about the possibility of sending forces in the case of a hypothetical Chinese attack on Taiwan.

The situation caused a surge of sell-offs across Japan's tourism-related stocks.

• Oriental Land shares dropped by 5.7%
• The department store chain plummeted by 11.3 percent
• Japan Airlines declined by 3.75%

"The ongoing tension over Taiwan and China's advisory advising against travel to Japan introduces near-term challenges for consumer-facing sectors.

"Chinese visitors represent roughly 25 percent of Japan's inbound traffic, making department stores, luxury retail, and tourism services particularly at risk."

GDP Contraction Breakdown

Japan's GDP declined by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were impacted by duties imposed by the US this year.

Overseas shipments were a major factor of the decline, falling by 1.2% compared with the previous quarter, and were 4.5% lower than a the same period last year.

Earlier this year, the American government had threatened Japan with a new 25% tariff on its goods, which was later reduced to 15% when the two countries reached a trade agreement.

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

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

"Japan's economy was stable in the initial six months of this year and the latest GDP data showed that growth is halted temporarily.

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

The White House has lately recognized the effect of tariffs on Americans, reducing tariffs on food imports including beef, tomatoes, coffee and fruits amid growing concerns about rising costs.

Business Agenda

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