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The Japanese economic system has shown a contraction for the first time in a year and a half, primarily driven by weakening exports as a result of recent US tariffs.

Group of Seven Growth Standings

Japan has become the initial G7 country to announce an economic contraction in the latest three-month period.

As the US yet to release its GDP figures for Q3 2025, the current G7 growth rankings show:

• The French economy: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canada: +0.1% (preliminary figure)
• Germany: 0%
• Italian economy: no growth
• Japan: -0.4%

Travel Stocks Slump during Diplomatic Dispute with China

Alongside the economic contraction, Japan is facing an intensifying political tension with China concerning Taiwan.

Shares in Japan's tourism and consumer businesses have dropped noticeably after China advised its residents to avoid visiting to Japan.

This decision by Chinese authorities escalated a political dispute that was sparked by statements from Japan's new prime minister about the possibility of deploying troops in the case of a hypothetical Chinese attack on Taiwan.

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

• The Tokyo Disneyland operator shares fell by 5.7 percent
• The department store chain plummeted by 11.3%
• The national carrier fell by 3.75 percent

"The ongoing dispute over Taiwan and China's advisory discouraging visits to Japan brings short-term headwinds for consumer-facing sectors.

"Chinese visitors represent roughly 25% of Japan's international visitors, making department stores, high-end shopping, and tourism services especially vulnerable."

Economic Contraction Breakdown

Japanese gross domestic product fell by 0.4 percent in the third quarter, as industrial overseas shipments were hit by tariffs levied by the US recently.

Exports were a major driver of the decline, 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 new 25% tariff on its products, which was later reduced to 15 percent when the two nations reached a trade agreement.

Consumer spending also fell, by 0.3% compared to the previous quarter.

On an annualized basis, Japan's GDP shrank by 1.8% in the three months through September.

"The Japanese economic situation was strong in the first half of this year and today's GDP figures showed that growth is halted temporarily.

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

The US administration has recently acknowledged the impact of tariffs on Americans, lowering tariffs on food imports including beef, produce, coffee and bananas amid increasing concerns about rising costs.

Economic Calendar

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