Japan's Economy Declines while Overseas Sales Face Impact by US Trade Duties

Japan's economy has experienced a decline for the initial time in a year and a half, largely caused by falling exports due to newly imposed American trade duties.

Group of Seven Growth Rankings

The Japanese economy has become the initial Group of Seven country to announce an output shrinkage in the most recent three-month period.

As the US yet to publish its GDP figures for Q3 2025, the current G7 economic rankings show:

• France: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canadian economy: 0.1 percent (preliminary figure)
• Germany: 0%
• Italy: 0%
• Japanese economy: negative 0.4 percent

Travel Stocks Slump amid Diplomatic Rift with Beijing

Alongside the GDP decline, Japan is facing an escalating diplomatic tension with China concerning Taiwan.

Stocks in Japanese tourism and retail companies have dropped noticeably after China advised its citizens to avoid visiting to Japan.

This action by Beijing escalated a political dispute that was triggered by remarks from Japan's recently appointed prime minister about the possibility of sending troops in the event of a potential Chinese attack on Taiwan.

The development caused a surge of selling across Japan's tourism-related shares.

• The Tokyo Disneyland operator stock fell by 5.7%
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier declined by 3.75 percent

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

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making department stores, luxury retail, and hospitality particularly at risk."

Economic Contraction Breakdown

Japanese GDP fell by 0.4 percent in the third quarter, as manufacturers' overseas shipments were affected by duties levied by the US this year.

Overseas shipments were a key factor of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5% lower than a the same period last year.

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

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

On an annual basis, Japan's real gross domestic product shrank 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 figures showed that growth is paused temporarily.

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

The US administration has lately recognized the impact of tariffs on US consumers, lowering duties on imported food products including beef, tomatoes, coffee and bananas amid increasing concerns about increasing costs.

Economic Calendar

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