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The Japanese economic system has shown a decline for the first time in six quarters, primarily driven by declining overseas shipments because of newly imposed American trade duties.

Group of Seven Growth Rankings

Japan has become the first G7 nation to report an GDP decline in the most recent quarter.

As the US still needing to publish its GDP figures for Q3 2025, the present G7 growth leaderboard indicate:

• The French economy: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canadian economy: +0.1% (provisional estimate)
• German economy: 0%
• Italy: 0%
• Japanese economy: negative 0.4 percent

Travel Shares Decline during Diplomatic Rift with Beijing

In addition to the GDP decline, Japan is dealing with an growing political dispute with China concerning Taiwan.

Stocks in Japan's travel and retail firms have fallen significantly after China advised its residents to refrain from traveling to Japan.

This move by Chinese authorities intensified a political dispute that was initiated by statements from Japan's recently appointed PM about the potential of deploying troops in the event of a potential Chinese attack on Taiwan.

The situation led to a surge of sell-offs across Japanese tourism-related stocks.

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

"The ongoing dispute over Taiwan and Beijing's travel warning advising against travel to Japan creates short-term challenges for consumer-facing sectors.

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

Economic Contraction Breakdown

Japan's gross domestic product dropped by 0.4% in the third quarter, as manufacturers' exports were affected by duties levied by the US this year.

Overseas shipments were a key driver of the decline, falling by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a year ago.

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

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

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

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

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

The White House has recently recognized the effect of tariffs on US consumers, reducing tariffs on imported food products including meat, tomatoes, coffee and fruits amid growing concerns about rising costs.

Economic Agenda

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