The Japanese Economic Output Shrinks while Exports Face Impact by US Tariffs
Japan's economy has experienced a decline for the first time in six quarters, largely caused by declining overseas shipments due to newly imposed US trade duties.
G7 Growth Standings
Japan stands as the initial G7 country to disclose an output shrinkage in the latest quarter.
As the US yet to publish its gross domestic product figures for Q3 2025, the present Group of Seven economic rankings display:
- The French economy: +0.5% expansion
- United Kingdom: 0.1 percent
- Canadian economy: +0.1% (preliminary figure)
- German economy: 0%
- Italian economy: 0%
- Japan: -0.4%
Tourism Stocks Slump amid Political Rift with China
Alongside the economic contraction, Japan is experiencing an escalating diplomatic conflict with China regarding Taiwan.
Stocks in Japan's travel and retail companies have dropped sharply after China recommended its citizens to refrain from visiting to Japan.
This decision by Chinese authorities heightened a political dispute that was sparked by statements from Japan's recently appointed prime minister about the potential of sending forces in the case of a potential Chinese invasion on Taiwan.
The situation triggered a wave of selling across Japanese leisure stocks.
- Oriental Land shares fell by 5.7%
- Isetan Mitsukoshi tumbled by 11.3 percent
- Japan Airlines fell by 3.75%
"The ongoing tension over Taiwan and China's travel warning discouraging travel to Japan creates short-term difficulties for consumer-facing sectors.
"Chinese visitors account for roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and tourism services especially vulnerable."
GDP Contraction Breakdown
Japanese gross domestic product declined by 0.4% in the July-September quarter, as manufacturers' overseas shipments were affected by tariffs levied by the US this year.
Overseas shipments were a primary driver of the decline, dropping by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a year ago.
Previously, 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 concluded a trade deal.
Private demand also declined, by 0.3% quarter-on-quarter.
On an annualized basis, Japan's real gross domestic product contracted by 1.8% in the quarter through September.
"Japan's economy was solid in the initial six months of this year and the latest GDP figures showed that momentum is paused temporarily.
I anticipate Japan's economy to be returning on a moderate growth trend going forward."
The White House has lately acknowledged the impact of tariffs on Americans, lowering duties on food imports including meat, tomatoes, coffee and bananas amid growing concerns about rising costs.
Business Agenda
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- 15:00 Greenwich Mean Time: US construction spending data for August