The Japanese Economy Declines while Overseas Sales Suffer by US Tariffs
Japan's economy has recorded a decline for the first time in six quarters, mainly driven by declining exports because of recent American tariffs.
Group of Seven Growth Standings
The Japanese economy has become the initial Group of Seven nation to announce an economic contraction in the previous three-month period.
With the US still needing to release its gross domestic product data for Q3 2025, the current Group of Seven economic leaderboard display:
- France: 0.5 percent quarterly growth
- United Kingdom: 0.1 percent
- Canadian economy: +0.1% (provisional estimate)
- Germany: 0%
- Italian economy: no growth
- Japan: -0.4%
Travel Stocks Decline amid Political Rift with Beijing
In addition to the GDP decline, Japan is experiencing an growing political conflict with China regarding Taiwan.
Shares in Japanese travel and consumer companies have declined noticeably after China recommended its citizens to avoid traveling to Japan.
This decision by Chinese authorities heightened a diplomatic feud that was initiated by comments from Japan's new prime minister about the potential of sending troops in the event of a hypothetical Chinese attack on Taiwan.
The development triggered a surge of sell-offs across Japanese leisure shares.
- Oriental Land shares dropped by 5.7 percent
- Isetan Mitsukoshi tumbled by 11.3%
- Japan Airlines fell by 3.75 percent
"The China-Japan tension over Taiwan and Beijing's advisory discouraging travel to Japan brings near-term difficulties for consumer-facing sectors.
"Tourists from China account for roughly 25% of Japan's inbound traffic, making retail outlets, high-end shopping, and tourism services particularly at risk."
Economic Decline Breakdown
Japan's gross domestic product dropped by 0.4 percent in the third quarter, as manufacturers' overseas shipments were impacted by tariffs imposed by the United States this year.
Overseas shipments were a primary driver 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 threatened Japan with a new 25 percent tariff on its products, which was later reduced to 15% when the two countries reached a trade deal.
Consumer spending also declined, by 0.3 percent quarter-on-quarter.
On an annual basis, Japan's real gross domestic product shrank by 1.8% in the quarter through September.
"The Japanese economic situation was solid in the initial six months of this year and the latest GDP figures showed that momentum is paused temporarily.
I anticipate Japan's economy to be back on a moderate recovery trend going forward."
The US administration has recently recognized the effect of tariffs on US consumers, lowering tariffs on food imports including meat, tomatoes, beverages and bananas amid growing concerns about rising costs.
Economic Calendar
- 8am GMT: Switzerland GDP report for Q3
- 3pm GMT: US construction spending data for August
