🔗 Share this article

The Japanese economic system has shown a decline for the initial time in a year and a half, primarily driven by declining exports because of newly imposed American trade duties.

G7 Economic Leaderboard

The Japanese economy has become the initial G7 economy to announce an economic contraction in the latest three-month period.

As the United States still needing to publish its gross domestic product figures for the third quarter, the present Group of Seven economic rankings indicate:

• The French economy: +0.5% quarterly growth
• UK: +0.1%
• Canadian economy: +0.1% (preliminary figure)
• German economy: zero growth
• Italian economy: 0%
• Japanese economy: -0.4%

Travel Shares Decline amid Diplomatic Rift with China

Alongside the GDP decline, Japan is facing an growing diplomatic tension with China concerning Taiwan.

Stocks in Japanese travel and consumer firms have fallen significantly after China urged its nationals to refrain from traveling to Japan.

This action by Chinese authorities escalated a political dispute that was initiated by remarks from Japan's new prime minister about the potential of deploying troops in the case of a potential Chinese invasion on Taiwan.

The situation triggered a wave of sell-offs across Japanese leisure stocks.

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

"The ongoing dispute over Taiwan and Beijing's advisory discouraging travel to Japan creates near-term headwinds for retail and hospitality sectors.

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and hospitality especially vulnerable."

Economic Contraction Details

Japanese gross domestic product fell by 0.4% in the third quarter, as industrial overseas shipments were impacted by tariffs levied by the United States recently.

Overseas shipments were a primary factor of the decline, falling by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a year ago.

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

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

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

"Japan's economy was strong in the initial six months of this year and the latest GDP figures showed that growth is halted for now.

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

The US administration has lately acknowledged the impact of tariffs on Americans, reducing tariffs on food imports including meat, produce, beverages and fruits amid growing concerns about increasing costs.

Economic Agenda

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