The Japanese Economic Output Shrinks while Overseas Sales Suffer by US Tariffs

The Japanese economic system has experienced a decline for the first time in a year and a half, mainly driven by declining overseas shipments due to newly imposed US trade duties.

G7 Growth Leaderboard

The Japanese economy has become the first Group of Seven nation to announce an output shrinkage in the previous three-month period.

With the United States yet to publish its gross domestic product data for Q3 2025, the current Group of Seven economic rankings show:

• France: 0.5 percent quarterly growth
• UK: +0.1%
• Canada: +0.1% (preliminary figure)
• Germany: 0%
• Italy: no growth
• Japanese economy: -0.4%

Travel Stocks Decline during Political Dispute with Beijing

In addition to the GDP decline, Japan is dealing with an intensifying diplomatic conflict with China regarding Taiwan.

Shares in Japanese travel and retail businesses have declined sharply after China recommended its residents to refrain from visiting to Japan.

This move by Chinese authorities escalated a diplomatic feud that was initiated by statements from Japan's new prime minister about the potential of deploying forces in the case of a hypothetical Chinese invasion on Taiwan.

The situation triggered a wave of sell-offs across Japanese tourism-related shares.

• Oriental Land shares fell by 5.7%
• The department store chain tumbled by 11.3%
• Japan Airlines declined by 3.75%

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

"Chinese visitors represent roughly 25% of Japan's inbound traffic, making department stores, luxury retail, and tourism services particularly at risk."

Economic Decline Breakdown

Japan's gross domestic product dropped by 0.4 percent in the July-September quarter, as industrial exports were impacted by duties imposed by the US recently.

Overseas shipments were a major driver of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5% lower than a the same period last year.

Earlier this year, the US administration had threatened Japan with a additional 25 percent tariff on its products, which was later reduced to 15 percent when the two countries reached a trade agreement.

Private demand also fell, by 0.3 percent quarter-on-quarter.

On an annual basis, Japan's GDP contracted by 1.8% in the quarter through September.

"Japan's economy was strong in the initial six months of this year and today's GDP figures showed that growth is paused temporarily.

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

The White House has lately acknowledged the effect of tariffs on Americans, reducing tariffs on imported food products including beef, produce, coffee and fruits amid increasing concerns about increasing costs.

Business Calendar

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