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The Japanese economic system has shown a contraction for the initial time in six quarters, primarily driven by weakening overseas shipments because of recent American tariffs.

Group of Seven Growth Leaderboard

Japan has become the first G7 nation to announce an output shrinkage in the previous quarter.

With the US still needing to release its gross domestic product figures for Q3 2025, the current G7 economic standings indicate:

• France: 0.5 percent quarterly growth
• United Kingdom: +0.1%
• Canadian economy: 0.1 percent (provisional estimate)
• Germany: zero growth
• Italian economy: 0%
• Japanese economy: negative 0.4 percent

Travel Shares Slump during Political Dispute with Beijing

In addition to the GDP decline, Japan is facing an intensifying diplomatic conflict with China regarding Taiwan.

Stocks in Japan's travel and consumer businesses have declined sharply after China recommended its citizens to avoid traveling to Japan.

This action by Chinese authorities heightened a political dispute that was triggered by comments from Tokyo's recently appointed PM about the potential of deploying troops in the event of a potential Chinese invasion on Taiwan.

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

• Oriental Land shares fell by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3 percent
• The national carrier declined by 3.75%

"The China-Japan tension over Taiwan and China's travel warning discouraging visits 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 especially vulnerable."

GDP Contraction Details

Japan's GDP dropped by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were impacted by tariffs imposed by the US this year.

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

Previously, the US administration had proposed Japan with a additional 25% tariff on its goods, which was later lowered to 15% when the two nations concluded a trade agreement.

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

On an annual basis, Japan's real gross domestic product contracted by 1.8% in the three months through September.

"The Japanese economic situation was stable in the first half of this year and today's GDP data showed that growth is paused for now.

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

The US administration has lately acknowledged the effect of tariffs on US consumers, lowering tariffs on food imports including beef, produce, coffee and bananas amid increasing concerns about increasing costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August