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Japan's economy has recorded a contraction for the initial time in six quarters, largely driven by falling overseas shipments due to newly imposed US tariffs.

Group of Seven Growth Leaderboard

The Japanese economy has become the first G7 economy to announce an GDP decline in the most recent quarter.

With the United States still needing to publish its GDP figures for Q3 2025, the present Group of Seven growth leaderboard display:

• The French economy: 0.5 percent expansion
• United Kingdom: 0.1 percent
• Canada: +0.1% (preliminary figure)
• German economy: zero growth
• Italy: no growth
• Japan: negative 0.4 percent

Tourism Shares Slump during Diplomatic Rift with China

In addition to the GDP decline, Japan is experiencing an escalating diplomatic dispute with China concerning Taiwan.

Stocks in Japan's tourism and retail companies have declined sharply after China recommended its residents to avoid visiting to Japan.

This decision by Beijing escalated a political dispute that was triggered by remarks from Tokyo's new PM about the potential of deploying forces in the case of a potential Chinese attack on Taiwan.

The development triggered a surge of sell-offs across Japan's tourism-related shares.

• The Tokyo Disneyland operator shares fell by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3%
• The national carrier fell by 3.75%

"The China-Japan dispute over Taiwan and Beijing's travel warning advising against visits to Japan brings near-term challenges for retail and hospitality sectors.

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services especially vulnerable."

Economic Contraction Details

Japan's GDP dropped by 0.4 percent in the third quarter, as manufacturers' exports were hit by tariffs imposed by the US this year.

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

Previously, the American government had threatened Japan with a new 25% tariff on its goods, which was later lowered to 15% when the two countries reached a trade deal.

Consumer spending also declined, by 0.3% compared to the previous quarter.

On an annual basis, Japan's GDP shrank by 1.8 percent in the quarter through September.

"The Japanese economic situation was strong in the initial six months of this year and today's GDP data showed that momentum is halted temporarily.

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

The White House has lately acknowledged the impact of tariffs on US consumers, reducing tariffs on imported food products including beef, produce, beverages and fruits amid increasing concerns about rising costs.

Business Calendar

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