The Japanese Economy Contracts while Overseas Sales Suffer by American Tariffs

Japan's economy has shown a contraction for the initial time in a year and a half, mainly caused by weakening exports because of recent US tariffs.

Group of Seven Economic Leaderboard

Japan has become the initial G7 nation to disclose an GDP decline in the most recent quarter.

With the United States still needing to release its GDP figures for Q3 2025, the current G7 economic leaderboard display:

• The French economy: 0.5 percent expansion
• United Kingdom: 0.1 percent
• Canadian economy: 0.1 percent (preliminary figure)
• German economy: zero growth
• Italian economy: 0%
• Japan: -0.4%

Tourism Shares Decline during Diplomatic Dispute with Beijing

In addition to the economic contraction, Japan is dealing with an growing political conflict with China regarding Taiwan.

Stocks in Japan's tourism and retail businesses have declined sharply after China urged its nationals to refrain from traveling to Japan.

This action by Chinese authorities escalated a political dispute that was sparked by comments from Japan's recently appointed PM about the potential of deploying forces in the event of a hypothetical Chinese attack on Taiwan.

The situation caused a surge of selling across Japan's tourism-related stocks.

• The Tokyo Disneyland operator stock fell by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3 percent
• Japan Airlines declined by 3.75%

"The ongoing tension over Taiwan and Beijing's advisory advising against travel to Japan brings near-term difficulties for retail and hospitality sectors.

"Chinese visitors represent roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and tourism services especially vulnerable."

GDP Contraction Breakdown

Japanese gross domestic product dropped by 0.4% in the third quarter, as manufacturers' overseas shipments were impacted by tariffs imposed by the US this year.

Overseas shipments were a key driver of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

Previously, the US administration had proposed Japan with a additional 25% tariff on its goods, which was later lowered to 15% when the two countries reached a trade deal.

Private demand also declined, by 0.3% compared to the previous quarter.

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

"Japan's economy was stable 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 growth trend going forward."

The White House has recently acknowledged the impact of tariffs on Americans, lowering tariffs on food imports including beef, produce, beverages and fruits amid growing concerns about increasing costs.

Economic Calendar

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August