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The Japanese economic system has shown a decline for the first time in a year and a half, mainly driven by declining overseas shipments due to recent American tariffs.

G7 Economic Leaderboard

Japan stands as the initial Group of Seven country to report an GDP decline in the most recent quarter.

As the United States still needing to publish its gross domestic product data for Q3 2025, the current G7 economic standings show:

• The French economy: +0.5% quarterly growth
• UK: 0.1 percent
• Canadian economy: +0.1% (preliminary figure)
• Germany: zero growth
• Italian economy: 0%
• Japan: negative 0.4 percent

Tourism Shares Slump during Diplomatic Dispute with China

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

Stocks in Japanese tourism and consumer firms have declined sharply after China recommended its nationals to avoid traveling to Japan.

This move by Beijing intensified a diplomatic feud that was sparked by statements from Tokyo's recently appointed prime minister about the potential of deploying forces in the case of a potential Chinese invasion on Taiwan.

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

• The Tokyo Disneyland operator shares fell by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3 percent
• The national carrier fell by 3.75%

"The ongoing dispute over Taiwan and China's advisory advising against visits to Japan brings near-term challenges for consumer-facing sectors.

"Tourists from China account for roughly 25% of Japan's international visitors, making department stores, luxury retail, and hospitality especially vulnerable."

GDP Contraction Breakdown

Japanese gross domestic product fell by 0.4% in the July-September quarter, as industrial exports were hit by duties imposed by the US recently.

Overseas shipments were a primary factor of the decline, dropping by 1.2% compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

Earlier this year, 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 deal.

Consumer spending also fell, by 0.3 percent compared to the previous quarter.

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

"The Japanese economic situation was solid in the initial six months of this year and the latest GDP data showed that momentum is paused temporarily.

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

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

Economic Calendar

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