The Japanese Economy Shrinks as Overseas Sales Face Impact by American Tariffs
The Japanese economic system has shown a contraction for the first time in a year and a half, mainly caused by weakening exports due to recent American trade duties.
Group of Seven Economic Rankings
The Japanese economy has become the initial Group of Seven economy to disclose an economic contraction in the latest three-month period.
As the United States still needing to release its gross domestic product data for Q3 2025, the present G7 economic standings display:
- France: +0.5% expansion
- United Kingdom: +0.1%
- Canada: +0.1% (preliminary figure)
- German economy: zero growth
- Italy: 0%
- Japan: negative 0.4 percent
Tourism Stocks Slump during Political Rift with China
In addition to the economic contraction, Japan is experiencing an growing political conflict with China concerning Taiwan.
Shares in Japan's travel and consumer companies have fallen sharply after China urged its nationals to avoid traveling to Japan.
This action by Chinese authorities escalated a diplomatic feud that was triggered by remarks from Tokyo's new PM about the possibility of sending forces in the event of a potential Chinese invasion on Taiwan.
The situation led to a surge of selling across Japanese tourism-related shares.
- The Tokyo Disneyland operator stock 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 Beijing's advisory discouraging travel to Japan introduces near-term challenges for retail and hospitality sectors.
"Chinese visitors represent roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and tourism services especially at risk."
GDP Decline Breakdown
Japanese gross domestic product declined by 0.4% in the third quarter, as industrial exports were impacted by duties levied by the US recently.
Overseas shipments were a primary driver of the contraction, dropping by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a year ago.
Previously, the US administration had threatened Japan with a new 25% tariff on its goods, which was later lowered to 15 percent when the two countries reached a trade agreement.
Private demand also declined, by 0.3 percent quarter-on-quarter.
On an annual basis, Japan's GDP shrank by 1.8% in the quarter through September.
"Japan's economy was solid in the first half of this year and the latest 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 acknowledged the impact of tariffs on US consumers, reducing tariffs on imported food products including beef, produce, coffee and bananas amid increasing concerns about rising costs.
Business Agenda
- 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
- 3pm GMT: US construction spending data for August
