Japan's Economy Shrinks as Exports Suffer by US Trade Duties

The Japanese economic system has experienced a decline for the initial time in six quarters, primarily driven by falling exports due to newly imposed US trade duties.

Group of Seven Economic Leaderboard

The Japanese economy has become the first G7 economy to report an output shrinkage in the latest quarter.

With the US still needing to release its gross domestic product data for Q3 2025, the present Group of Seven economic standings show:

• France: +0.5% expansion
• UK: 0.1 percent
• Canadian economy: 0.1 percent (provisional estimate)
• German economy: zero growth
• Italian economy: 0%
• Japanese economy: -0.4%

Travel Stocks Slump amid Political Rift with China

Alongside the economic contraction, Japan is facing an growing diplomatic tension with China concerning Taiwan.

Shares in Japanese tourism and retail firms have dropped sharply after China advised its nationals to refrain from traveling to Japan.

This decision 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 case of a hypothetical Chinese attack on Taiwan.

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

• Oriental Land stock dropped by 5.7%
• The department store chain tumbled by 11.3%
• Japan Airlines fell by 3.75 percent

"The ongoing dispute over Taiwan and Beijing's travel warning discouraging visits to Japan brings short-term headwinds for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and tourism services especially vulnerable."

Economic Contraction Details

Japan's gross domestic product declined by 0.4% in the third quarter, as manufacturers' exports were hit by duties levied by the United States this year.

Overseas shipments were a primary driver of the decline, falling by 1.2% compared with the previous quarter, and were 4.5% lower than a year ago.

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

Consumer spending also declined, by 0.3% quarter-on-quarter.

On an annualized basis, Japan's GDP shrank by 1.8 percent in the three months through September.

"Japan's economy was strong in the initial six months of this year and the latest GDP figures showed that growth is halted temporarily.

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

The White House has recently acknowledged the impact of tariffs on US consumers, lowering duties on imported food products including meat, produce, beverages and bananas amid growing concerns about increasing costs.

Business Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August