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Japan's economy has recorded a decline for the first time in six quarters, primarily caused by weakening overseas shipments as a result of newly imposed US tariffs.

Group of Seven Growth Rankings

Japan has become the initial G7 country to announce an GDP decline in the previous three-month period.

With the US still needing to publish its GDP figures for Q3 2025, the present G7 growth leaderboard display:

• France: 0.5 percent expansion
• UK: 0.1 percent
• Canada: 0.1 percent (preliminary figure)
• German economy: 0%
• Italy: 0%
• Japan: negative 0.4 percent

Tourism Shares Decline during Political Dispute with Beijing

Alongside the GDP decline, Japan is experiencing an growing political conflict with China regarding Taiwan.

Shares in Japan's travel and retail businesses have fallen noticeably after China urged its nationals to avoid traveling to Japan.

This move by Chinese authorities escalated a diplomatic feud that was initiated by comments from Japan's recently appointed prime minister about the possibility of deploying forces in the case of a hypothetical Chinese invasion on Taiwan.

The development caused a wave of sell-offs across Japanese tourism-related shares.

• Oriental Land stock fell by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier declined by 3.75 percent

"The ongoing tension over Taiwan and China's advisory advising against travel to Japan brings short-term challenges for consumer-facing sectors.

"Tourists from China represent roughly 25 percent of Japan's international visitors, making retail outlets, high-end shopping, and hospitality particularly vulnerable."

Economic Decline Details

Japanese gross domestic product dropped by 0.4% in the July-September quarter, as manufacturers' overseas shipments were affected by duties levied by the US this year.

Exports were a primary driver of the decline, dropping by 1.2% compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

Earlier this year, the American government had proposed Japan with a additional 25% tariff on its products, which was later reduced to 15% when the two countries reached a trade agreement.

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

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

"The Japanese economic situation was solid in the initial six months of this year and the latest GDP data showed that momentum is paused for now.

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

The White House has recently recognized the impact of tariffs on US consumers, lowering tariffs on imported food products including meat, produce, coffee and fruits amid growing concerns about increasing costs.

Economic Agenda

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