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The Japanese economic system has recorded a contraction for the first time in a year and a half, primarily driven by weakening exports because of recent US trade duties.

Group of Seven Economic Leaderboard

The Japanese economy stands as the first Group of Seven nation to announce an GDP decline in the most recent quarter.

As the US yet to publish its gross domestic product figures for Q3 2025, the current G7 growth leaderboard display:

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

Travel Shares Decline during Political Rift with China

Alongside the economic contraction, Japan is experiencing an intensifying political conflict with China regarding Taiwan.

Stocks in Japan's tourism and retail businesses have declined significantly after China advised its citizens to avoid visiting to Japan.

This move by Beijing escalated a diplomatic feud that was triggered by statements from Japan's new PM about the potential of deploying forces in the event of a potential Chinese attack on Taiwan.

The development caused a wave of sell-offs across Japan's leisure shares.

• The Tokyo Disneyland operator shares fell by 5.7 percent
• The department store chain plummeted by 11.3%
• The national carrier fell by 3.75%

"The ongoing tension over Taiwan and Beijing's travel warning discouraging travel to Japan creates short-term challenges for consumer-facing sectors.

"Chinese visitors account for roughly 25% of Japan's inbound traffic, making department stores, high-end shopping, and hospitality especially at risk."

GDP Contraction Details

Japanese gross domestic product dropped by 0.4 percent in the third quarter, as manufacturers' overseas shipments were affected by tariffs levied by the US recently.

Exports were a primary driver of the contraction, dropping by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.

Earlier this year, the US administration had proposed Japan with a additional 25 percent tariff on its products, which was later lowered to 15% when the two countries concluded a trade agreement.

Consumer spending also declined, by 0.3 percent 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 strong in the initial six months of this year and today's GDP figures showed that momentum is halted for now.

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

The US administration has recently acknowledged the effect of tariffs on Americans, reducing tariffs on imported food products including beef, produce, beverages and bananas amid increasing concerns about increasing costs.

Economic Agenda

• 8am GMT: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August