Japan's Economic Output Declines while Overseas Sales Suffer by American Trade Duties
Japan's economy has shown a decline for the initial time in six quarters, mainly caused by falling exports due to recent US trade duties.
Group of Seven Growth Leaderboard
The Japanese economy has become the first Group of Seven economy to report an GDP decline in the previous quarter.
With the US yet to publish its gross domestic product figures for Q3 2025, the current G7 growth rankings show:
- The French economy: +0.5% quarterly growth
- United Kingdom: 0.1 percent
- Canada: +0.1% (preliminary figure)
- Germany: 0%
- Italian economy: 0%
- Japanese economy: negative 0.4 percent
Tourism Stocks Decline during Political Rift with Beijing
Alongside the economic contraction, Japan is facing an growing diplomatic dispute with China regarding Taiwan.
Shares in Japan's travel and consumer companies have dropped sharply after China advised its nationals to avoid traveling to Japan.
This decision by Beijing escalated a political dispute that was triggered by remarks from Japan's recently appointed PM about the possibility of sending forces in the case of a hypothetical Chinese invasion on Taiwan.
The development caused a surge of selling across Japan's tourism-related stocks.
- Oriental Land shares fell by 5.7%
- The department store chain plummeted by 11.3 percent
- The national carrier fell by 3.75 percent
"The China-Japan tension over Taiwan and China's advisory advising against visits to Japan creates near-term difficulties for consumer-facing sectors.
"Chinese visitors represent roughly 25 percent of Japan's international visitors, making department stores, luxury retail, and hospitality particularly at risk."
Economic Contraction Breakdown
Japanese GDP declined by 0.4% in the July-September quarter, as industrial exports were impacted by duties imposed by the US recently.
Exports were a primary factor of the decline, falling 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 threatened Japan with a additional 25 percent tariff on its products, which was later reduced to 15 percent when the two countries reached a trade agreement.
Consumer spending also fell, by 0.3% quarter-on-quarter.
On an annualized basis, Japan's real gross domestic product shrank by 1.8 percent in the three months through September.
"The Japanese economic situation was solid in the first half 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 moderate growth trend going forward."
The US administration has lately acknowledged the impact of tariffs on Americans, lowering tariffs on food imports including beef, tomatoes, beverages and fruits amid growing concerns about rising costs.
Business Agenda
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
