The Japanese Economic Output Contracts as Exports Face Impact by American Trade Duties

Japan's economy has recorded a contraction for the first time in a year and a half, primarily driven by falling overseas shipments due to recent US trade duties.

G7 Economic Standings

Japan stands as the initial G7 country to report an output shrinkage in the latest quarter.

With the US yet to release its GDP data for Q3 2025, the current Group of Seven growth rankings show:

• France: 0.5 percent expansion
• UK: 0.1 percent
• Canadian economy: 0.1 percent (provisional estimate)
• German economy: 0%
• Italy: 0%
• Japan: negative 0.4 percent

Travel Stocks Decline during Political Dispute with Beijing

In addition to the economic contraction, Japan is dealing with an intensifying diplomatic dispute with China concerning Taiwan.

Stocks in Japan's tourism and retail companies have dropped significantly after China urged its citizens to avoid visiting to Japan.

This action by Chinese authorities escalated a political dispute that was sparked by statements from Japan's new prime minister about the potential of deploying forces in the event of a potential Chinese invasion on Taiwan.

The development triggered a wave of sell-offs across Japan's leisure shares.

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

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

"Chinese visitors represent roughly 25% of Japan's inbound traffic, making department stores, high-end shopping, and hospitality especially vulnerable."

GDP Decline Details

Japan's gross domestic product fell by 0.4% in the third quarter, as industrial overseas shipments were impacted by tariffs levied by the US recently.

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

Previously, the US administration had proposed Japan with a new 25% tariff on its products, which was later lowered to 15 percent when the two nations reached a trade agreement.

Private demand 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 figures showed that momentum is paused temporarily.

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

The US administration has recently recognized the effect of tariffs on Americans, lowering tariffs on imported food products including beef, tomatoes, beverages and bananas amid growing concerns about increasing costs.

Economic Agenda

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