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Japan's economy has experienced a contraction for the initial time in six quarters, primarily driven by weakening exports due to newly imposed US tariffs.

Group of Seven Economic Standings

The Japanese economy has become the initial G7 nation to disclose an output shrinkage in the latest three-month period.

As the US yet to release its GDP data for Q3 2025, the current Group of Seven economic leaderboard display:

• France: 0.5 percent quarterly growth
• UK: +0.1%
• Canadian economy: 0.1 percent (provisional estimate)
• German economy: 0%
• Italian economy: no growth
• Japan: negative 0.4 percent

Tourism Shares Decline amid Political Dispute with China

Alongside the economic contraction, Japan is facing an intensifying diplomatic conflict with China concerning Taiwan.

Stocks in Japan's tourism and retail firms have declined noticeably after China urged its nationals to refrain from visiting to Japan.

This move by Beijing intensified a political dispute that was triggered by statements from Tokyo's recently appointed PM about the potential of sending troops in the case of a potential Chinese invasion on Taiwan.

The development led to a surge of sell-offs across Japan's leisure shares.

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

"The China-Japan tension over Taiwan and China's advisory advising against travel to Japan brings short-term headwinds for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services particularly at risk."

GDP Contraction Details

Japanese GDP declined by 0.4 percent in the third quarter, as industrial exports were hit by duties imposed by the United States recently.

Exports were a key driver of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5% lower than a year ago.

Earlier this year, the US administration had proposed Japan with a additional 25 percent tariff on its goods, which was later reduced to 15 percent 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 contracted by 1.8 percent in the three months through September.

"Japan's economy was solid in the initial six months 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 US administration has recently acknowledged the effect of tariffs on US consumers, reducing tariffs on food imports including beef, tomatoes, beverages and fruits amid increasing concerns about increasing costs.

Economic Calendar

• 8am GMT: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August