Japan's Economic Output Shrinks while Exports Suffer by US Trade Duties

The Japanese economic system has experienced a drop for the initial time in a year and a half, primarily caused by falling exports as a result of recent US trade duties.

Group of Seven Growth Leaderboard

Japan stands as the initial G7 nation to disclose an output shrinkage in the latest three-month period.

As the US still needing to release its GDP data for Q3 2025, the current G7 growth standings indicate:

• The French economy: 0.5 percent expansion
• UK: +0.1%
• Canadian economy: 0.1 percent (provisional estimate)
• Germany: zero growth
• Italian economy: no growth
• Japan: negative 0.4 percent

Travel Stocks Slump amid Diplomatic Dispute with Beijing

Alongside the GDP decline, Japan is experiencing an intensifying political dispute with China concerning Taiwan.

Shares in Japanese tourism and retail companies have fallen noticeably after China urged its residents to avoid visiting to Japan.

This move by Chinese authorities escalated a diplomatic feud that was sparked by statements from Tokyo's recently appointed PM about the possibility of deploying troops in the case of a hypothetical Chinese attack on Taiwan.

The situation caused a surge of selling across Japanese leisure shares.

• Oriental Land stock fell by 5.7 percent
• The department store chain plummeted by 11.3 percent
• The national carrier fell by 3.75%

"The China-Japan tension over Taiwan and Beijing's advisory discouraging travel to Japan brings short-term difficulties for retail and hospitality sectors.

"Chinese visitors represent roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and hospitality particularly at risk."

GDP Decline Breakdown

Japanese GDP dropped by 0.4% in the third quarter, as manufacturers' overseas shipments were hit by tariffs levied by the United States recently.

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

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

Consumer spending also declined, by 0.3 percent quarter-on-quarter.

On an annual basis, Japan's GDP contracted by 1.8% in the quarter through September.

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

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

The White House has recently acknowledged the effect of tariffs on Americans, lowering duties on food imports including beef, produce, beverages and fruits amid increasing concerns about rising costs.

Business Calendar

• 8am GMT: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August