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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 declining exports as a result of recent US tariffs.

Group of Seven Economic Standings

Japan has become the first G7 nation to report an economic contraction in the most recent three-month period.

As the US still needing to publish its gross domestic product data for Q3 2025, the current Group of Seven economic rankings indicate:

• The French economy: +0.5% expansion
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (preliminary figure)
• German economy: 0%
• Italian economy: 0%
• Japan: negative 0.4 percent

Tourism Shares Slump amid Diplomatic Rift with China

Alongside the GDP decline, Japan is facing an escalating political conflict with China concerning Taiwan.

Shares in Japanese tourism and retail companies have fallen noticeably after China advised its nationals to avoid traveling to Japan.

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

The situation led to a surge of sell-offs across Japanese tourism-related shares.

• Oriental Land shares fell by 5.7%
• The department store chain plummeted by 11.3 percent
• The national carrier declined by 3.75 percent

"The China-Japan dispute over Taiwan and Beijing's travel warning discouraging visits to Japan brings near-term headwinds for consumer-facing sectors.

"Chinese visitors represent roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and hospitality particularly at risk."

GDP Decline Details

Japan's GDP dropped by 0.4 percent in the July-September quarter, as industrial exports were impacted by tariffs levied by the United States this year.

Exports were a key driver of the contraction, falling by 1.2 percent compared with the previous quarter, and were 4.5% lower than a year ago.

Previously, the American government had threatened Japan with a new 25% tariff on its products, which was later lowered to 15% when the two nations reached a trade agreement.

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

On an annualized basis, Japan's real gross domestic product contracted by 1.8% in the three months through September.

"Japan's economy was stable in the first half of this year and the latest GDP data showed that momentum is paused temporarily.

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

The White House has lately recognized the effect of tariffs on Americans, reducing duties on imported food products including meat, tomatoes, beverages and bananas amid growing concerns about rising costs.

Economic Calendar

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