The Japanese Economic Output Shrinks as Exports Suffer by US Tariffs
Japan's economy has recorded a drop for the first time in six quarters, primarily driven by weakening exports because of newly imposed American trade duties.
G7 Growth Leaderboard
The Japanese economy has become the initial G7 nation to announce an GDP decline in the latest three-month period.
As the United States still needing to publish its GDP data for Q3 2025, the present Group of Seven economic rankings show:
- The French economy: 0.5 percent expansion
- UK: +0.1%
- Canada: +0.1% (provisional estimate)
- German economy: zero growth
- Italian economy: no growth
- Japanese economy: -0.4%
Tourism Stocks Slump during Political Rift with China
Alongside the economic contraction, Japan is facing an intensifying diplomatic dispute with China concerning Taiwan.
Stocks in Japan's tourism and consumer companies have fallen sharply after China advised its citizens to refrain from traveling to Japan.
This action by Beijing escalated a political dispute that was initiated by remarks from Tokyo's new prime minister about the potential of sending troops in the event of a hypothetical Chinese invasion on Taiwan.
The development caused a surge of sell-offs across Japan's leisure stocks.
- Oriental Land stock fell by 5.7 percent
- Isetan Mitsukoshi plummeted by 11.3 percent
- Japan Airlines fell by 3.75%
"The ongoing tension over Taiwan and Beijing's travel warning discouraging visits to Japan creates short-term challenges for retail and hospitality sectors.
"Chinese visitors account for roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and tourism services especially vulnerable."
GDP Contraction Details
Japan's gross domestic product fell by 0.4 percent in the July-September quarter, as industrial overseas shipments were affected by duties imposed by the United States recently.
Exports were a key driver of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a year ago.
Earlier this year, the US administration had threatened Japan with a new 25% tariff on its products, which was later reduced to 15% when the two nations reached a trade deal.
Private demand also fell, by 0.3% compared to the previous quarter.
On an annual basis, Japan's real gross domestic product shrank by 1.8 percent in the three months through September.
"Japan's economy was stable in the first half of this year and today's GDP data showed that momentum is halted temporarily.
I anticipate Japan's economy to be returning on a gradual recovery trend going forward."
The White House has recently recognized the effect of tariffs on Americans, lowering tariffs on food imports including meat, produce, coffee and fruits amid growing concerns about rising costs.
Business Agenda
- 8am GMT: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
