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Japan's economy has experienced a contraction for the first time in six quarters, primarily caused by declining overseas shipments as a result of recent American tariffs.

G7 Growth Rankings

Japan stands as the first G7 nation to disclose an economic contraction in the latest quarter.

With the United States still needing to publish its GDP figures for Q3 2025, the current Group of Seven growth rankings indicate:

• France: 0.5 percent expansion
• UK: 0.1 percent
• Canadian economy: 0.1 percent (provisional estimate)
• German economy: 0%
• Italy: no growth
• Japan: -0.4%

Tourism Shares Slump during Political Dispute with Beijing

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

Stocks in Japanese travel and consumer companies have fallen noticeably after China urged its nationals to refrain from visiting to Japan.

This decision by Beijing escalated a political dispute that was triggered by comments from Tokyo's recently appointed prime minister about the possibility of sending troops in the event of a potential Chinese invasion on Taiwan.

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

• The Tokyo Disneyland operator shares dropped by 5.7%
• Isetan Mitsukoshi plummeted by 11.3 percent
• Japan Airlines fell by 3.75 percent

"The China-Japan tension over Taiwan and Beijing's advisory advising against visits to Japan introduces short-term challenges for consumer-facing sectors.

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services especially at risk."

Economic Contraction Details

Japan's GDP fell by 0.4% in the July-September quarter, as manufacturers' overseas shipments were hit by tariffs levied by the US recently.

Exports were a key factor of the decline, falling by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a year ago.

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

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

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

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

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

The White House has lately recognized the impact of tariffs on US consumers, lowering duties on food imports including beef, tomatoes, beverages and bananas amid growing concerns about rising costs.

Economic Calendar

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