The Japanese Economy Shrinks while Exports Are Hit by American Tariffs
Japan's economy has shown a decline for the first time in a year and a half, mainly driven by declining overseas shipments due to recent American tariffs.
Group of Seven Economic Standings
The Japanese economy stands as the initial Group of Seven nation to announce an output shrinkage in the latest three-month period.
As the United States still needing to publish its gross domestic product data for Q3 2025, the present G7 economic rankings indicate:
- The French economy: +0.5% expansion
- UK: 0.1 percent
- Canada: 0.1 percent (provisional estimate)
- Germany: zero growth
- Italy: 0%
- Japan: -0.4%
Travel Stocks Decline during Diplomatic Rift with Beijing
Alongside the GDP decline, Japan is facing an intensifying diplomatic conflict with China concerning Taiwan.
Stocks in Japanese travel and consumer firms have declined sharply after China urged its citizens to refrain from visiting to Japan.
This decision by Chinese authorities escalated a political dispute that was triggered by statements from Tokyo's recently appointed prime minister about the possibility of deploying forces in the event of a hypothetical Chinese invasion on Taiwan.
The situation caused a surge of sell-offs across Japan's leisure stocks.
- The Tokyo Disneyland operator stock dropped by 5.7%
- Isetan Mitsukoshi tumbled by 11.3%
- The national carrier declined by 3.75%
"The ongoing dispute over Taiwan and China's travel warning advising against visits to Japan brings near-term headwinds for retail and hospitality sectors.
"Tourists from China account for roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and hospitality particularly at risk."
GDP Decline Details
Japanese gross domestic product dropped by 0.4 percent in the July-September quarter, as industrial exports were affected by tariffs levied by the United States recently.
Exports were a primary driver of the contraction, dropping by 1.2% compared with the previous quarter, and were 4.5 percent lower than a the same period last year.
Previously, the US administration had threatened Japan with a new 25 percent tariff on its products, which was later lowered to 15% when the two nations reached a trade deal.
Private demand also declined, by 0.3 percent quarter-on-quarter.
On an annualized basis, Japan's GDP shrank by 1.8% in the three months through September.
"Japan's economy was solid in the first half of this year and the latest GDP figures showed that growth is halted temporarily.
I anticipate Japan's economy to be back on a moderate recovery trend going forward."
The US administration has recently acknowledged the effect of tariffs on Americans, lowering duties on food imports including meat, tomatoes, beverages and bananas amid growing concerns about increasing costs.
Economic Calendar
- 8am GMT: Switzerland GDP report for Q3
- 3pm GMT: US construction spending data for August
