Japan's Economy Contracts as Exports Suffer by US Trade Duties

The Japanese economic system has experienced a drop for the first time in six quarters, mainly driven by falling overseas shipments due to recent US trade duties.

Group of Seven Growth Rankings

Japan stands as the first Group of Seven economy to disclose an output shrinkage in the latest quarter.

As the US yet to release its gross domestic product data for Q3 2025, the current G7 growth standings indicate:

• The French economy: 0.5 percent quarterly growth
• UK: 0.1 percent
• Canada: 0.1 percent (preliminary figure)
• German economy: zero growth
• Italy: no growth
• Japan: -0.4%

Tourism Shares Slump during Political Dispute with China

Alongside the economic contraction, Japan is facing an escalating diplomatic conflict with China regarding Taiwan.

Stocks in Japan's travel and retail firms have fallen significantly after China advised its citizens to refrain from visiting to Japan.

This move by Chinese authorities intensified a political dispute that was initiated by remarks from Japan's new prime minister about the possibility of sending forces in the case of a potential Chinese invasion on Taiwan.

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

• The Tokyo Disneyland operator stock fell by 5.7%
• The department store chain tumbled by 11.3 percent
• The national carrier fell by 3.75%

"The ongoing dispute over Taiwan and China's travel warning advising against visits to Japan creates short-term difficulties for consumer-facing sectors.

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making retail outlets, high-end shopping, and hospitality especially vulnerable."

GDP Decline Details

Japanese gross domestic product declined by 0.4% in the July-September quarter, as manufacturers' exports were hit by duties levied by the US this year.

Overseas shipments were a primary driver of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

Earlier this year, the US administration had proposed Japan with a new 25% tariff on its goods, which was later reduced to 15 percent when the two countries reached a trade deal.

Private demand also declined, by 0.3 percent quarter-on-quarter.

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

"Japan's economy was strong in the first half of this year and today's GDP figures showed that growth is halted temporarily.

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

The US administration has recently acknowledged the effect of tariffs on US consumers, reducing duties on imported food products including meat, produce, coffee and fruits amid growing concerns about increasing costs.

Business Calendar

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