The Japanese Economy Declines as Exports Face Impact by American Tariffs

The Japanese economic system has shown a decline for the first time in six quarters, primarily caused by weakening overseas shipments because of newly imposed US tariffs.

G7 Growth Standings

The Japanese economy stands as the initial G7 country to report an GDP decline in the previous quarter.

As the United States yet to publish its GDP figures for Q3 2025, the current G7 growth leaderboard indicate:

• The French economy: +0.5% expansion
• UK: +0.1%
• Canada: 0.1 percent (preliminary figure)
• German economy: 0%
• Italian economy: 0%
• Japanese economy: -0.4%

Tourism Shares Decline amid Political Rift with China

In addition to the economic contraction, Japan is experiencing an intensifying diplomatic tension with China concerning Taiwan.

Shares in Japanese travel and retail companies have declined noticeably after China recommended its residents to refrain from traveling to Japan.

This action by Beijing intensified a political dispute that was sparked by statements from Tokyo's recently appointed prime minister about the possibility of deploying troops in the case of a potential Chinese attack on Taiwan.

The development triggered a surge of sell-offs across Japanese leisure shares.

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

"The China-Japan dispute over Taiwan and China's travel warning discouraging travel to Japan creates short-term challenges for consumer-facing sectors.

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

Economic Contraction Details

Japanese gross domestic product declined by 0.4% in the third quarter, as manufacturers' overseas shipments were hit by duties imposed by the US recently.

Overseas shipments were a major driver of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5% lower than a year ago.

Earlier this year, the American government had proposed Japan with a new 25 percent tariff on its products, which was later reduced to 15 percent when the two nations concluded a trade agreement.

Private demand also fell, by 0.3 percent quarter-on-quarter.

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

"The Japanese economic situation was strong in the first half of this year and today's GDP figures showed that growth is halted temporarily.

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

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

Economic Calendar

• 8am GMT: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August