The Japanese Economy Shrinks as Exports Face Impact by American Tariffs
Japan's economy has recorded a decline for the initial time in a year and a half, primarily driven by weakening exports because of recent American tariffs.
Group of Seven Economic Rankings
The Japanese economy has become the first Group of Seven nation to disclose an GDP decline in the most recent quarter.
With the US still needing to publish its GDP figures for Q3 2025, the present G7 economic standings indicate:
- France: 0.5 percent quarterly growth
- United Kingdom: +0.1%
- Canadian economy: +0.1% (provisional estimate)
- Germany: 0%
- Italian economy: 0%
- Japan: -0.4%
Travel Stocks Slump during Political Rift with Beijing
In addition to the GDP decline, Japan is facing an growing diplomatic tension with China regarding Taiwan.
Shares in Japan's travel and retail companies have dropped noticeably after China recommended its nationals to avoid traveling to Japan.
This move by Beijing heightened a diplomatic feud that was initiated by comments from Tokyo's recently appointed prime minister about the possibility of sending troops in the event of a hypothetical Chinese invasion on Taiwan.
The development caused a surge of sell-offs across Japan's leisure shares.
- The Tokyo Disneyland operator shares fell by 5.7%
- The department store chain plummeted by 11.3%
- Japan Airlines declined by 3.75%
"The ongoing tension over Taiwan and China's advisory discouraging travel to Japan creates near-term challenges for retail and hospitality sectors.
"Chinese visitors account for roughly 25% of Japan's inbound traffic, making retail outlets, high-end shopping, and hospitality particularly at risk."
Economic Contraction Breakdown
Japanese GDP fell by 0.4% in the July-September quarter, as manufacturers' exports were hit by duties imposed by the US this year.
Overseas shipments 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 year ago.
Previously, the US administration had proposed Japan with a additional 25 percent tariff on its goods, which was later reduced to 15 percent when the two nations concluded a trade agreement.
Consumer spending also fell, by 0.3 percent quarter-on-quarter.
On an annualized basis, Japan's real gross domestic product shrank by 1.8% in the quarter through September.
"Japan's economy was strong in the first half of this year and the latest GDP figures showed that momentum is paused temporarily.
I anticipate Japan's economy to be returning on a gradual growth trend going forward."
The White House has recently recognized the impact of tariffs on US consumers, reducing duties on food imports including beef, tomatoes, beverages and bananas amid growing concerns about rising costs.
Economic Agenda
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 3pm GMT: US construction spending data for August
