The Japanese Economy Contracts while Exports Are Hit by American Tariffs
The Japanese economic system has shown a decline for the first time in six quarters, largely driven by declining exports as a result of newly imposed US trade duties.
G7 Economic Rankings
Japan has become the initial G7 nation to report an GDP decline in the previous quarter.
As the US still needing to publish its GDP figures for Q3 2025, the present G7 economic leaderboard indicate:
- France: 0.5 percent quarterly growth
- United Kingdom: 0.1 percent
- Canadian economy: +0.1% (provisional estimate)
- Germany: 0%
- Italy: 0%
- Japan: negative 0.4 percent
Travel Shares Decline amid Political Rift with Beijing
In addition to the economic contraction, Japan is experiencing an escalating political conflict with China concerning Taiwan.
Shares in Japanese tourism and retail businesses have declined noticeably after China recommended its citizens to refrain from traveling to Japan.
This move by Chinese authorities intensified a political dispute that was triggered by statements from Japan's recently appointed PM about the potential of deploying forces in the event of a hypothetical Chinese attack on Taiwan.
The development led to a surge of sell-offs across Japan's leisure shares.
- Oriental Land stock fell by 5.7 percent
- The department store chain plummeted by 11.3 percent
- Japan Airlines declined by 3.75 percent
"The ongoing dispute over Taiwan and Beijing's travel warning advising against travel to Japan introduces near-term headwinds for retail and hospitality sectors.
"Chinese visitors account for roughly 25 percent of Japan's international visitors, making retail outlets, high-end shopping, and hospitality particularly at risk."
GDP Decline Details
Japanese GDP declined by 0.4 percent in the July-September quarter, as industrial exports were affected by duties imposed by the US this year.
Exports were a primary factor of the decline, falling by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a year ago.
Previously, the American government had threatened Japan with a new 25 percent tariff on its goods, which was later reduced to 15% when the two nations reached a trade agreement.
Consumer spending also declined, by 0.3 percent compared to the previous quarter.
On an annualized basis, Japan's real gross domestic product shrank by 1.8 percent in the three months through September.
"The Japanese economic situation was stable in the first half of this year and the latest GDP data showed that growth is paused temporarily.
I anticipate Japan's economy to be back on a moderate recovery trend going forward."
The US administration has recently acknowledged the effect of tariffs on Americans, lowering duties on imported food products including beef, produce, coffee and bananas amid growing concerns about rising costs.
Business Calendar
- 8am GMT: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
