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Japan's economy has shown a drop for the first time in six quarters, mainly caused by falling exports because of recent US tariffs.

Group of Seven Economic Standings

Japan stands as the first G7 country to report an economic contraction in the latest quarter.

As the US still needing to release its GDP data for Q3 2025, the present G7 economic leaderboard indicate:

• France: 0.5 percent expansion
• United Kingdom: 0.1 percent
• Canadian economy: 0.1 percent (preliminary figure)
• German economy: zero growth
• Italy: no growth
• Japan: -0.4%

Travel Stocks Slump amid Political Dispute with China

Alongside the GDP decline, Japan is dealing with an intensifying diplomatic tension with China concerning Taiwan.

Shares in Japanese travel and retail companies have fallen noticeably after China advised its residents to avoid visiting to Japan.

This decision by Chinese authorities heightened a diplomatic feud that was initiated by comments from Japan's new PM about the possibility of deploying forces in the event of a hypothetical Chinese attack on Taiwan.

The development triggered a wave of selling across Japanese tourism-related shares.

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

"The ongoing tension over Taiwan and China's advisory discouraging visits to Japan introduces short-term difficulties for retail and hospitality sectors.

"Chinese visitors represent roughly 25% of Japan's inbound traffic, making department stores, luxury retail, and hospitality particularly vulnerable."

GDP Decline Details

Japan's gross domestic product fell by 0.4 percent in the third quarter, as industrial overseas shipments were hit by tariffs imposed by the United States this year.

Overseas shipments were a major factor of the contraction, dropping by 1.2% compared with the previous quarter, and were 4.5 percent lower than a year ago.

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

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

On an annualized basis, Japan's GDP contracted by 1.8 percent in the quarter through September.

"The Japanese economic situation was stable in the initial six months of this year and the latest GDP figures showed that growth is halted for now.

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

The White House has recently acknowledged the effect of tariffs on US consumers, reducing tariffs on food imports including beef, tomatoes, coffee and bananas amid growing concerns about rising costs.

Economic Calendar

• 8am GMT: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August