The Japanese Economy Declines as Overseas Sales Suffer by US Tariffs

The Japanese economic system has experienced a decline for the first time in a year and a half, mainly driven by declining overseas shipments as a result of recent US trade duties.

Group of Seven Economic Rankings

Japan stands as the initial G7 nation to report an output shrinkage in the previous three-month period.

As the United States yet to publish its GDP data for Q3 2025, the current Group of Seven growth rankings show:

• France: 0.5 percent quarterly growth
• United Kingdom: 0.1 percent
• Canada: 0.1 percent (preliminary figure)
• Germany: zero growth
• Italy: 0%
• Japan: -0.4%

Travel Shares Decline amid Political Rift with China

Alongside the economic contraction, Japan is experiencing an escalating political conflict with China regarding Taiwan.

Stocks in Japanese tourism and retail companies have dropped significantly after China advised its nationals to refrain from visiting to Japan.

This action by Beijing escalated a diplomatic feud that was initiated by statements from Tokyo's recently appointed PM about the potential of deploying forces in the case of a hypothetical Chinese invasion on Taiwan.

The situation caused a surge of sell-offs across Japanese leisure shares.

• The Tokyo Disneyland operator shares dropped by 5.7%
• Isetan Mitsukoshi plummeted by 11.3 percent
• Japan Airlines fell by 3.75%

"The China-Japan dispute over Taiwan and China's advisory advising against travel to Japan creates short-term difficulties for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and tourism services especially at risk."

GDP Contraction Details

Japan's gross domestic product dropped by 0.4% in the third quarter, as industrial exports were impacted by tariffs imposed by the US recently.

Overseas shipments were a primary factor of the contraction, falling by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

Previously, the American government had proposed Japan with a additional 25% tariff on its products, which was later lowered to 15% when the two countries concluded a trade deal.

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

On an annualized basis, Japan's real gross domestic product shrank by 1.8% in the three months 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 returning on a gradual recovery trend going forward."

The White House has recently recognized the impact of tariffs on Americans, reducing tariffs on food imports including meat, tomatoes, beverages and bananas amid increasing concerns about rising costs.

Economic Agenda

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