Japan's Economic Output Contracts as Exports Are Hit by American Trade Duties
Japan's economy has recorded a contraction for the first time in a year and a half, primarily driven by weakening exports as a result of newly imposed American tariffs.
G7 Growth Rankings
Japan stands as the initial Group of Seven country to report an GDP decline in the latest three-month period.
With the US still needing to release its gross domestic product figures for Q3 2025, the present G7 economic rankings display:
- France: +0.5% quarterly growth
- UK: 0.1 percent
- Canadian economy: 0.1 percent (provisional estimate)
- German economy: 0%
- Italy: 0%
- Japanese economy: -0.4%
Tourism Shares Slump during Diplomatic Rift with China
In addition to the economic contraction, Japan is dealing with an growing political dispute with China concerning Taiwan.
Shares in Japan's travel and consumer firms have declined noticeably after China advised its citizens to refrain from visiting to Japan.
This move by Chinese authorities escalated a political dispute that was triggered by statements from Japan's new prime minister about the potential of deploying forces in the event of a potential Chinese attack on Taiwan.
The development led to a wave of sell-offs across Japan's tourism-related shares.
- The Tokyo Disneyland operator stock fell by 5.7%
- Isetan Mitsukoshi plummeted by 11.3%
- Japan Airlines fell by 3.75%
"The ongoing tension over Taiwan and China's advisory advising against travel to Japan brings short-term headwinds for consumer-facing sectors.
"Chinese visitors represent roughly 25 percent of Japan's international visitors, making department stores, luxury retail, and hospitality particularly at risk."
Economic Decline Breakdown
Japanese gross domestic product dropped by 0.4 percent in the July-September quarter, as industrial overseas shipments were impacted by tariffs imposed by the United States recently.
Overseas shipments were a key factor of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.
Earlier this year, the American government had proposed Japan with a new 25% tariff on its goods, which was later reduced to 15% when the two nations concluded a trade deal.
Consumer spending also declined, by 0.3% quarter-on-quarter.
On an annualized basis, Japan's GDP shrank by 1.8 percent in the three months through September.
"The Japanese economic situation was solid in the first half of this year and today's GDP figures showed that momentum is paused temporarily.
I expect Japan's economy to be returning on a moderate growth trend going forward."
The White House has lately recognized the impact of tariffs on Americans, lowering duties on food imports including beef, tomatoes, coffee and bananas amid increasing concerns about increasing costs.
Business Calendar
- 8am GMT: Switzerland GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
