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The Japanese economic system has recorded a drop for the first time in a year and a half, primarily driven by weakening exports due to newly imposed American tariffs.

G7 Growth Rankings

Japan has become the first Group of Seven economy to disclose an output shrinkage in the latest three-month period.

As the US yet to publish its GDP figures for Q3 2025, the current G7 growth standings display:

• France: +0.5% expansion
• United Kingdom: +0.1%
• Canadian economy: +0.1% (provisional estimate)
• German economy: 0%
• Italian economy: 0%
• Japan: -0.4%

Tourism Stocks Slump amid Diplomatic Dispute with China

Alongside the economic contraction, Japan is dealing with an escalating political conflict with China concerning Taiwan.

Stocks in Japanese tourism and retail firms have declined sharply after China recommended its nationals to refrain from traveling to Japan.

This move by Beijing intensified a political dispute that was initiated by remarks from Tokyo's recently appointed PM about the potential of sending forces in the event of a potential Chinese invasion on Taiwan.

The situation led to a surge of sell-offs across Japan's leisure shares.

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

"The ongoing dispute over Taiwan and China's advisory discouraging visits to Japan introduces near-term difficulties for consumer-facing sectors.

"Tourists from China account for roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services particularly at risk."

Economic Decline Breakdown

Japan's GDP fell by 0.4% in the third quarter, as manufacturers' exports were impacted by tariffs imposed by the US recently.

Overseas shipments were a key driver of the decline, falling by 1.2% compared with the previous quarter, and were 4.5% lower than a year ago.

Previously, the US administration had threatened Japan with a new 25 percent tariff on its products, which was later lowered to 15% when the two countries reached a trade agreement.

Consumer spending also fell, by 0.3% quarter-on-quarter.

On an annual basis, Japan's real gross domestic product 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 data showed that growth is halted for now.

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

The White House has recently recognized the impact of tariffs on US consumers, reducing tariffs on imported food products including meat, tomatoes, beverages and bananas amid growing concerns about increasing costs.

Business Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August