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Japan's economy has shown a decline for the first time in six quarters, primarily caused by falling exports because of newly imposed US trade duties.

G7 Economic Standings

Japan has become the first Group of Seven nation to announce an GDP decline in the latest quarter.

With the US still needing to publish its gross domestic product data for Q3 2025, the current G7 economic rankings show:

• France: +0.5% expansion
• UK: 0.1 percent
• Canada: +0.1% (provisional estimate)
• German economy: zero growth
• Italian economy: no growth
• Japanese economy: negative 0.4 percent

Tourism Stocks Slump amid Diplomatic Rift with Beijing

Alongside the GDP decline, Japan is dealing with an escalating diplomatic dispute with China regarding Taiwan.

Stocks in Japanese tourism and consumer businesses have declined significantly after China urged its residents to refrain from traveling to Japan.

This move by Chinese authorities escalated a diplomatic feud that was initiated by remarks from Tokyo's new PM about the potential of deploying troops in the event of a potential Chinese invasion on Taiwan.

The development triggered a surge of selling across Japanese leisure shares.

• The Tokyo Disneyland operator stock dropped by 5.7%
• The department store chain tumbled by 11.3 percent
• Japan Airlines declined by 3.75%

"The ongoing dispute over Taiwan and Beijing's advisory advising against visits to Japan creates near-term headwinds for retail and hospitality sectors.

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and tourism services especially at risk."

Economic Decline Details

Japan's gross domestic product dropped by 0.4 percent in the third quarter, as industrial overseas shipments were hit by duties imposed by the United States this year.

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

Earlier this year, the American government had threatened Japan with a new 25 percent tariff on its products, which was later reduced to 15% when the two countries concluded a trade deal.

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

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

"Japan's economy was solid in the first half of this year and today's GDP figures showed that momentum is paused temporarily.

I anticipate Japan's economy to be back on a gradual recovery trend going forward."

The White House has recently acknowledged the impact of tariffs on US consumers, lowering tariffs on imported food products including meat, tomatoes, coffee and fruits amid growing concerns about increasing costs.

Business Agenda

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