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The Japanese economic system has recorded a drop for the first time in six quarters, mainly caused by falling exports because of recent US tariffs.

Group of Seven Economic Rankings

Japan stands as the initial G7 economy to announce an GDP decline in the previous three-month period.

With the United States yet to publish its GDP figures for Q3 2025, the current G7 growth standings show:

• The French economy: +0.5% expansion
• UK: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• Germany: zero growth
• Italian economy: 0%
• Japanese economy: -0.4%

Travel Shares Decline amid Political Dispute with China

Alongside the GDP decline, Japan is dealing with an escalating diplomatic conflict with China concerning Taiwan.

Shares in Japanese tourism and consumer firms have dropped significantly after China urged its residents to avoid traveling to Japan.

This action by Beijing escalated a diplomatic feud that was initiated by statements from Japan's new PM about the potential of deploying forces in the event of a hypothetical Chinese invasion on Taiwan.

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

• Oriental Land stock dropped by 5.7%
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier fell by 3.75%

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

"Chinese visitors represent roughly 25% of Japan's inbound traffic, making department stores, high-end shopping, and hospitality especially vulnerable."

GDP Decline Details

Japanese GDP fell by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were impacted by tariffs levied by the United States this year.

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

Previously, the American government had proposed Japan with a additional 25 percent tariff on its products, which was later reduced to 15 percent when the two countries concluded 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 quarter through September.

"Japan's economy was stable in the first half 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 White House has recently recognized the impact of tariffs on US consumers, lowering duties on food imports including beef, produce, coffee and bananas amid increasing concerns about increasing costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August