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The Japanese economic system has experienced a drop for the initial time in a year and a half, primarily driven by weakening overseas shipments due to recent American tariffs.

G7 Growth Rankings

The Japanese economy has become the first Group of Seven country to report an economic contraction in the most recent quarter.

With the United States yet to release its GDP figures for Q3 2025, the current G7 growth standings show:

• The French economy: +0.5% expansion
• United Kingdom: +0.1%
• Canada: +0.1% (provisional estimate)
• German economy: zero growth
• Italy: 0%
• Japanese economy: negative 0.4 percent

Travel Shares Decline amid Political Dispute with China

Alongside the economic contraction, Japan is dealing with an escalating diplomatic dispute with China concerning Taiwan.

Shares in Japan's travel and retail firms have dropped sharply after China urged its residents to refrain from traveling to Japan.

This move by Beijing escalated a political dispute that was sparked by statements from Japan's recently appointed PM about the possibility of sending forces in the event of a potential Chinese attack on Taiwan.

The situation caused a wave of selling across Japan's leisure shares.

• The Tokyo Disneyland operator stock dropped by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3 percent
• The national carrier fell by 3.75%

"The China-Japan dispute over Taiwan and China's travel warning discouraging visits to Japan introduces short-term headwinds for retail and hospitality sectors.

"Chinese visitors represent roughly 25 percent of Japan's inbound traffic, making retail outlets, high-end shopping, and tourism services especially at risk."

Economic Contraction Breakdown

Japan's gross domestic product declined by 0.4% in the July-September quarter, as industrial overseas shipments were impacted by tariffs levied by the United States recently.

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

Previously, the US administration had proposed Japan with a new 25 percent tariff on its goods, which was later reduced to 15 percent when the two countries reached a trade agreement.

Private demand also fell, by 0.3 percent compared to the previous quarter.

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

"The Japanese economic situation was strong in the first half of this year and the latest GDP data showed that momentum is paused temporarily.

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

The US administration has lately recognized the impact of tariffs on US consumers, lowering duties on imported food products including beef, produce, coffee and bananas amid increasing concerns about rising costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August