The Japanese Economy Shrinks while Exports Face Impact by American Tariffs
The Japanese economic system has recorded a decline for the first time in a year and a half, primarily driven by weakening exports due to recent American trade duties.
G7 Growth Rankings
The Japanese economy has become the first G7 economy to report an economic contraction in the previous three-month period.
As the United States yet to release its GDP figures for Q3 2025, the current G7 economic rankings display:
- The French economy: 0.5 percent expansion
- UK: 0.1 percent
- Canadian economy: +0.1% (provisional estimate)
- Germany: zero growth
- Italian economy: no growth
- Japanese economy: negative 0.4 percent
Travel Stocks Decline during Diplomatic Dispute with Beijing
In addition to the economic contraction, Japan is experiencing an escalating diplomatic conflict with China concerning Taiwan.
Stocks in Japanese tourism and consumer companies have declined sharply after China advised its nationals to avoid traveling to Japan.
This move by Beijing intensified a diplomatic feud that was triggered by comments from Tokyo's new prime minister about the potential of sending forces in the event of a hypothetical Chinese attack on Taiwan.
The situation caused a wave of sell-offs across Japanese tourism-related shares.
- Oriental Land shares fell by 5.7 percent
- Isetan Mitsukoshi tumbled by 11.3 percent
- Japan Airlines fell by 3.75 percent
"The China-Japan tension over Taiwan and China's advisory advising against travel to Japan introduces near-term challenges for retail and hospitality sectors.
"Chinese visitors account for roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and tourism services particularly vulnerable."
GDP Contraction Breakdown
Japanese GDP dropped by 0.4 percent in the third quarter, as industrial overseas shipments were affected by tariffs imposed by the US this year.
Overseas shipments were a primary factor of the decline, falling by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.
Previously, the US administration had threatened Japan with a additional 25 percent tariff on its goods, which was later reduced to 15 percent when the two countries reached a trade deal.
Consumer spending also fell, by 0.3% quarter-on-quarter.
On an annualized basis, Japan's GDP shrank by 1.8% in the three months through September.
"The Japanese economic situation was stable in the initial six months of this year and the latest GDP data showed that momentum is halted for now.
I expect Japan's economy to be returning on a gradual recovery trend going forward."
The White House has lately acknowledged the effect of tariffs on Americans, lowering tariffs on food imports including beef, produce, beverages and fruits amid increasing concerns about rising costs.
Business Calendar
- 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
- 3pm GMT: US construction spending data for August
