Japan's Economy Contracts as Overseas Sales Suffer by US Tariffs

The Japanese economic system has recorded a drop for the first time in six quarters, largely caused by declining overseas shipments as a result of recent American trade duties.

G7 Growth Standings

Japan stands as the initial G7 country to report an output shrinkage in the previous quarter.

With the United States still needing to release its GDP figures for Q3 2025, the present Group of Seven growth standings display:

• The French economy: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canada: +0.1% (preliminary figure)
• German economy: 0%
• Italian economy: no growth
• Japanese economy: -0.4%

Travel Shares Decline amid Political Rift with China

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

Shares in Japan's travel and consumer firms have dropped significantly after China advised its residents to refrain from traveling to Japan.

This action by Chinese authorities heightened a diplomatic feud that was triggered by statements from Tokyo's recently appointed prime minister about the possibility of sending troops in the case of a potential Chinese attack on Taiwan.

The development caused a surge of sell-offs across Japan's leisure shares.

• The Tokyo Disneyland operator shares fell by 5.7%
• Isetan Mitsukoshi plummeted by 11.3 percent
• Japan Airlines declined by 3.75 percent

"The China-Japan tension over Taiwan and China's travel warning advising against travel to Japan creates near-term challenges for retail and hospitality sectors.

"Tourists from China represent roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and hospitality particularly at risk."

GDP Contraction Details

Japan's GDP dropped by 0.4 percent in the July-September quarter, as industrial overseas shipments were impacted by tariffs imposed by the United States this year.

Exports were a key factor of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5% lower than a year ago.

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

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

On an annual basis, Japan's real gross domestic product contracted by 1.8% in the quarter through September.

"The Japanese economic situation 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 gradual recovery trend going forward."

The US administration has recently recognized the impact of tariffs on US consumers, reducing tariffs on imported food products including meat, tomatoes, coffee and bananas amid increasing concerns about rising costs.

Economic Calendar

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