🔗 Share this article

Japan's economy has shown a decline for the first time in a year and a half, largely driven by falling exports due to newly imposed US tariffs.

G7 Growth Leaderboard

The Japanese economy has become the first G7 nation to announce an output shrinkage in the previous quarter.

As the United States still needing to publish its GDP figures for the third quarter, the present G7 economic standings indicate:

• France: +0.5% quarterly growth
• UK: 0.1 percent
• Canada: +0.1% (preliminary figure)
• German economy: zero growth
• Italy: no growth
• Japanese economy: negative 0.4 percent

Travel Shares Slump amid Diplomatic Rift with Beijing

Alongside the economic contraction, Japan is experiencing an escalating political tension with China regarding Taiwan.

Shares in Japan's travel and retail businesses have fallen sharply after China recommended its nationals to avoid visiting to Japan.

This decision by Beijing heightened a diplomatic feud that was sparked by statements from Japan's recently appointed prime minister about the possibility of sending troops in the case of a hypothetical Chinese invasion on Taiwan.

The development caused a surge of sell-offs across Japan's tourism-related shares.

• The Tokyo Disneyland operator stock dropped by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier fell by 3.75%

"The China-Japan dispute over Taiwan and China's advisory discouraging travel to Japan creates near-term headwinds for consumer-facing sectors.

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

GDP Decline Details

Japan's GDP dropped by 0.4% in the third quarter, as industrial overseas shipments were hit by duties levied by the US recently.

Overseas shipments were a key driver of the decline, falling by 1.2% compared with the April-June quarter, and were 4.5% lower than a the same period last year.

Earlier this year, the US administration had proposed Japan with a new 25 percent tariff on its products, which was later reduced to 15% when the two nations concluded a trade deal.

Private demand also fell, by 0.3% quarter-on-quarter.

On an annual basis, Japan's real gross domestic product contracted by 1.8% in the three months through September.

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

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

The White House has lately acknowledged the effect of tariffs on US consumers, reducing duties on food imports including beef, produce, coffee and fruits amid increasing concerns about increasing costs.

Business Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August