The Japanese Economy Shrinks while Overseas Sales Are Hit by US Trade Duties
The Japanese economic system has shown a drop for the first time in a year and a half, mainly driven by weakening overseas shipments as a result of recent American trade duties.
G7 Economic Standings
Japan has become the initial Group of Seven economy to announce an output shrinkage in the previous quarter.
As the US still needing to release its GDP data for Q3 2025, the present Group of Seven growth standings indicate:
- France: 0.5 percent quarterly growth
- United Kingdom: 0.1 percent
- Canada: 0.1 percent (preliminary figure)
- Germany: 0%
- Italian economy: no growth
- Japan: -0.4%
Tourism Stocks Slump during Diplomatic Dispute with China
In addition to the economic contraction, Japan is dealing with an growing diplomatic conflict with China regarding Taiwan.
Stocks in Japanese travel and consumer firms have dropped noticeably after China urged its nationals to avoid visiting to Japan.
This decision by Beijing heightened a diplomatic feud that was sparked by remarks from Japan's new PM about the potential of deploying troops in the case of a hypothetical Chinese invasion on Taiwan.
The development led to a surge of sell-offs across Japan's tourism-related stocks.
- Oriental Land stock fell by 5.7 percent
- Isetan Mitsukoshi tumbled by 11.3%
- Japan Airlines declined by 3.75 percent
"The China-Japan dispute over Taiwan and China's travel warning advising against visits to Japan brings near-term headwinds for retail and hospitality sectors.
"Tourists from China account for roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services especially at risk."
GDP Decline Details
Japan's GDP declined by 0.4 percent in the third quarter, as manufacturers' exports were impacted by duties imposed by the US this year.
Exports were a major driver of the contraction, dropping 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 goods, which was later reduced to 15% when the two nations concluded a trade deal.
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.
"The Japanese economic situation was strong in the first half of this year and the latest GDP data showed that growth is paused for now.
I anticipate Japan's economy to be returning on a moderate recovery trend going forward."
The US administration has lately acknowledged the impact of tariffs on Americans, lowering duties on food imports including meat, tomatoes, beverages and fruits amid growing concerns about rising costs.
Business Calendar
- 8am GMT: Swiss GDP report for Q3
- 3pm GMT: US construction spending data for August
