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The Japanese economic system has experienced a contraction for the first time in a year and a half, primarily driven by falling overseas shipments as a result of recent US tariffs.

G7 Economic Leaderboard

The Japanese economy stands as the first Group of Seven economy to disclose an output shrinkage in the most recent three-month period.

As the United States yet to release its gross domestic product data for the third quarter, the present Group of Seven economic leaderboard show:

• France: +0.5% expansion
• UK: 0.1 percent
• Canada: +0.1% (provisional estimate)
• German economy: 0%
• Italian economy: no growth
• Japan: -0.4%

Tourism Shares Slump amid Diplomatic Rift with Beijing

In addition to the GDP decline, Japan is dealing with an intensifying diplomatic dispute with China regarding Taiwan.

Shares in Japanese tourism and consumer companies have fallen sharply after China advised its residents to avoid traveling to Japan.

This action by Beijing intensified a diplomatic feud that was triggered by statements from Tokyo's recently appointed prime minister about the potential of deploying troops in the case of a potential Chinese invasion on Taiwan.

The situation led to a wave of sell-offs across Japan's tourism-related stocks.

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

"The China-Japan tension over Taiwan and Beijing's advisory discouraging travel to Japan creates near-term headwinds for consumer-facing sectors.

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

Economic Contraction Details

Japan's gross domestic product declined by 0.4% in the July-September quarter, as industrial exports were hit by duties levied by the US this year.

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

Earlier this year, the US administration had threatened Japan with a new 25 percent tariff on its products, which was later reduced to 15% when the two nations reached a trade agreement.

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

On an annualized basis, Japan's real gross domestic product shrank by 1.8% 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 for now.

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

The White House has recently recognized the effect of tariffs on Americans, lowering tariffs on imported food products including meat, tomatoes, coffee and bananas amid growing concerns about increasing costs.

Economic Calendar

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August