The Japanese Economy Contracts as Exports Suffer by US Trade Duties
Japan's economy has recorded a drop for the first time in a year and a half, primarily caused by weakening exports as a result of newly imposed US tariffs.
G7 Economic Standings
Japan has become the first Group of Seven economy to announce an economic contraction in the previous three-month period.
With the US still needing to publish its GDP figures for Q3 2025, the current G7 growth standings show:
- France: +0.5% quarterly growth
- United Kingdom: +0.1%
- Canadian economy: 0.1 percent (provisional estimate)
- Germany: 0%
- Italy: no growth
- Japanese economy: -0.4%
Travel Stocks Slump during Diplomatic Dispute with Beijing
In addition to the economic contraction, Japan is facing an intensifying political dispute with China regarding Taiwan.
Stocks in Japanese travel and consumer firms have fallen noticeably after China recommended its citizens to avoid traveling to Japan.
This decision by Beijing heightened a political dispute that was triggered by remarks from Japan's new PM about the possibility of sending forces in the case of a potential Chinese attack on Taiwan.
The situation led to a wave of selling across Japanese leisure stocks.
- Oriental Land stock dropped by 5.7 percent
- The department store chain tumbled by 11.3%
- Japan Airlines fell by 3.75 percent
"The ongoing tension over Taiwan and China's travel warning discouraging travel to Japan creates near-term challenges for retail and hospitality sectors.
"Chinese visitors represent roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and tourism services especially vulnerable."
GDP Contraction Breakdown
Japan's GDP dropped by 0.4 percent in the third quarter, as industrial exports were hit by duties imposed by the US recently.
Overseas shipments were a major factor of the contraction, falling by 1.2% compared with the April-June quarter, and were 4.5% 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 countries concluded a trade deal.
Consumer spending also fell, by 0.3 percent compared to the previous quarter.
On an annual basis, Japan's real gross domestic product contracted by 1.8% in the three months through September.
"The Japanese economic situation was stable in the first half of this year and today's GDP figures showed that growth is paused temporarily.
I anticipate Japan's economy to be returning on a moderate growth trend going forward."
The White House has recently recognized the impact of tariffs on US consumers, reducing tariffs on food imports including meat, tomatoes, coffee and bananas amid growing concerns about increasing costs.
Economic Agenda
- 8am GMT: Swiss GDP report for Q3
- 3pm GMT: US construction spending data for August
