The Japanese Economy Contracts as Overseas Sales Are Hit by American Tariffs

The Japanese economic system has recorded a drop for the first time in six quarters, mainly caused by falling exports as a result of newly imposed US trade duties.

G7 Growth Standings

Japan has become the initial Group of Seven economy to disclose an GDP decline in the previous quarter.

With the United States yet to release its gross domestic product data for Q3 2025, the present Group of Seven economic rankings show:

• The French economy: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canada: +0.1% (provisional estimate)
• Germany: zero growth
• Italian economy: no growth
• Japanese economy: -0.4%

Travel Shares Slump amid Diplomatic Dispute with Beijing

In addition to the economic contraction, Japan is dealing with an escalating diplomatic tension with China concerning Taiwan.

Shares in Japan's tourism and retail companies have fallen sharply after China recommended its residents to refrain from visiting to Japan.

This move by Chinese authorities escalated a diplomatic feud that was triggered by statements from Tokyo's recently appointed PM about the potential of sending forces in the event of a hypothetical Chinese attack on Taiwan.

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

• The Tokyo Disneyland operator stock dropped by 5.7 percent
• The department store chain tumbled by 11.3 percent
• Japan Airlines declined by 3.75%

"The China-Japan dispute over Taiwan and Beijing's advisory discouraging travel to Japan introduces short-term difficulties for consumer-facing sectors.

"Chinese visitors represent roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services particularly at risk."

Economic Decline Breakdown

Japanese gross domestic product fell by 0.4% in the third quarter, as industrial overseas shipments were hit by tariffs imposed by the United States this year.

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

Earlier this year, the US administration had proposed Japan with a additional 25% tariff on its products, which was later lowered to 15 percent when the two nations reached a trade agreement.

Private demand also declined, by 0.3% compared to the previous quarter.

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

"Japan's economy was stable in the initial six months of this year and today's GDP figures showed that momentum is paused for now.

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

The US administration has lately recognized the impact of tariffs on Americans, lowering tariffs on imported food products including beef, produce, coffee and fruits amid increasing concerns about rising costs.

Economic Agenda

• 8am GMT: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August