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Japan's economy has recorded a drop for the first time in a year and a half, mainly driven by weakening exports due to newly imposed American tariffs.

G7 Growth Rankings

The Japanese economy stands as the first G7 economy to report an economic contraction in the previous three-month period.

With the United States yet to release its gross domestic product figures for Q3 2025, the current G7 economic leaderboard display:

• France: 0.5 percent expansion
• UK: 0.1 percent
• Canada: +0.1% (preliminary figure)
• German economy: zero growth
• Italy: no growth
• Japan: -0.4%

Tourism Stocks Decline amid Political Rift with China

Alongside the economic contraction, Japan is experiencing an intensifying diplomatic conflict with China regarding Taiwan.

Stocks in Japanese tourism and retail companies have dropped sharply after China advised its citizens to refrain from traveling to Japan.

This action by Beijing heightened a political dispute that was sparked by remarks from Tokyo's recently appointed PM about the possibility of deploying troops in the event of a potential Chinese attack on Taiwan.

The situation triggered a wave of sell-offs across Japan's tourism-related stocks.

• Oriental Land shares fell by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3%
• Japan Airlines declined by 3.75%

"The ongoing dispute over Taiwan and Beijing's travel warning discouraging travel to Japan introduces short-term difficulties for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's international visitors, making retail outlets, high-end shopping, and hospitality especially at risk."

GDP Contraction Breakdown

Japanese gross domestic product dropped by 0.4% in the third quarter, as industrial exports were affected by duties imposed by the United States recently.

Exports were a key factor 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.

Earlier this year, the US administration had proposed Japan with a new 25 percent 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 percent quarter-on-quarter.

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

"The Japanese economic situation was solid in the first half of this year and the latest GDP figures showed that growth is paused for now.

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

The White House has recently acknowledged the effect of tariffs on Americans, lowering tariffs on imported food products including meat, produce, beverages and bananas amid increasing concerns about increasing costs.

Economic Calendar

• 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August