Japan's Economic Output Shrinks while Overseas Sales Are Hit by US Trade Duties
Japan's economy has recorded a decline for the initial time in a year and a half, largely driven by falling overseas shipments because of newly imposed American trade duties.
Group of Seven Economic Rankings
The Japanese economy has become the first G7 economy to announce an economic contraction in the most recent quarter.
With the US yet to publish its GDP figures for Q3 2025, the present Group of Seven growth standings indicate:
- The French economy: 0.5 percent expansion
- United Kingdom: 0.1 percent
- Canada: +0.1% (provisional estimate)
- Germany: zero growth
- Italy: no growth
- Japan: -0.4%
Travel Stocks Decline during Diplomatic Rift with China
In addition to the GDP decline, Japan is experiencing an growing political conflict with China concerning Taiwan.
Shares in Japanese tourism and retail businesses have dropped sharply after China advised its citizens to avoid visiting to Japan.
This move by Chinese authorities intensified a diplomatic feud that was sparked by comments from Tokyo's new prime minister about the possibility of sending forces in the event of a potential Chinese invasion on Taiwan.
The situation led to a surge of sell-offs across Japanese tourism-related shares.
- The Tokyo Disneyland operator shares fell by 5.7%
- The department store chain plummeted by 11.3 percent
- The national carrier declined by 3.75%
"The ongoing tension over Taiwan and Beijing's travel warning discouraging visits to Japan creates near-term headwinds for retail and hospitality sectors.
"Tourists from China represent roughly 25% of Japan's international visitors, making retail outlets, luxury retail, and tourism services especially vulnerable."
GDP Decline Breakdown
Japan's GDP declined by 0.4% in the third quarter, as industrial exports were hit by tariffs levied by the US recently.
Overseas shipments were a major driver of the decline, dropping by 1.2 percent compared with the previous quarter, and were 4.5% lower than a year ago.
Previously, the American government had proposed Japan with a additional 25% tariff on its products, which was later reduced to 15% when the two countries concluded a trade agreement.
Consumer spending also declined, by 0.3 percent compared to the previous quarter.
On an annualized basis, Japan's real gross domestic product contracted by 1.8% in the quarter through September.
"The Japanese economic situation was solid in the initial six months of this year and the latest GDP data 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 lately acknowledged the effect of tariffs on Americans, reducing tariffs on imported food products including meat, tomatoes, coffee and bananas amid growing concerns about increasing costs.
Business Calendar
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 3pm GMT: US construction spending data for August
