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The Japanese economic system has experienced a decline for the first time in six quarters, mainly driven by falling overseas shipments because of newly imposed American tariffs.

G7 Economic Leaderboard

The Japanese economy has become the first G7 economy to report an economic contraction in the previous quarter.

With the United States yet to publish its GDP data for Q3 2025, the current G7 economic rankings show:

• The French economy: 0.5 percent expansion
• UK: 0.1 percent
• Canada: +0.1% (provisional estimate)
• German economy: zero growth
• Italy: 0%
• Japanese economy: -0.4%

Tourism Shares Slump during Political Dispute with Beijing

In addition to the economic contraction, Japan is dealing with an growing political dispute with China concerning Taiwan.

Shares in Japanese tourism and retail businesses have fallen sharply after China urged its nationals to refrain from traveling to Japan.

This decision by Beijing intensified a political dispute that was triggered by statements from Tokyo's recently appointed prime minister about the potential of deploying troops in the case of a hypothetical Chinese invasion on Taiwan.

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

• Oriental Land shares fell by 5.7%
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier declined by 3.75%

"The ongoing dispute over Taiwan and Beijing's travel warning discouraging visits to Japan brings near-term difficulties for consumer-facing sectors.

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and hospitality particularly vulnerable."

Economic Decline Details

Japanese GDP dropped by 0.4 percent in the July-September quarter, as industrial exports were hit by tariffs imposed by the US recently.

Overseas shipments were a major driver of the contraction, 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 threatened Japan with a additional 25 percent tariff on its products, which was later lowered to 15% when the two countries reached a trade deal.

Private demand also declined, by 0.3% compared to the previous quarter.

On an annualized basis, Japan's real gross domestic product shrank by 1.8 percent in the three months through September.

"The Japanese economic situation was solid in the initial six months of this year and today's GDP figures showed that momentum is halted for now.

I anticipate Japan's economy to be returning on a gradual recovery trend going forward."

The White House has lately recognized the effect of tariffs on US consumers, lowering tariffs on imported food products including beef, tomatoes, beverages and bananas amid increasing concerns about increasing costs.

Economic Agenda

• 8am GMT: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August