The Japanese Economy Declines while Exports Suffer by US Trade Duties

Japan's economy has recorded a drop for the first time in six quarters, primarily caused by falling exports due to newly imposed US tariffs.

G7 Economic Rankings

Japan stands as the first G7 economy to report an GDP decline in the previous three-month period.

As the US yet to publish its GDP figures for Q3 2025, the current G7 economic standings display:

• France: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canada: 0.1 percent (provisional estimate)
• Germany: 0%
• Italy: no growth
• Japanese economy: negative 0.4 percent

Tourism Stocks Decline amid Diplomatic Rift with Beijing

Alongside the GDP decline, Japan is dealing with an intensifying political tension with China regarding Taiwan.

Shares in Japan's travel and consumer firms have declined significantly after China recommended its residents to avoid traveling to Japan.

This action by Beijing intensified a diplomatic feud that was initiated by statements from Tokyo's recently appointed prime minister about the possibility of deploying forces in the case of a potential Chinese invasion on Taiwan.

The situation triggered a surge of sell-offs across Japanese leisure shares.

• The Tokyo Disneyland operator shares fell by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3 percent
• Japan Airlines fell by 3.75%

"The China-Japan tension over Taiwan and China's advisory discouraging travel to Japan creates near-term headwinds for consumer-facing sectors.

"Chinese visitors account for roughly 25% of Japan's international visitors, making department stores, high-end shopping, and tourism services especially at risk."

Economic Contraction Breakdown

Japanese gross domestic product fell by 0.4 percent in the July-September quarter, as industrial exports were hit by tariffs levied by the United States this year.

Exports were a major driver of the decline, falling by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a year ago.

Earlier this year, the American government had threatened Japan with a new 25 percent tariff on its goods, which was later lowered to 15% when the two countries reached a trade agreement.

Private demand also fell, by 0.3 percent compared to the previous quarter.

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

"The Japanese economic situation was strong in the first half of this year and the latest GDP data showed that momentum is paused for now.

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

The White House has lately recognized the impact of tariffs on US consumers, reducing tariffs on imported food products including beef, produce, coffee and bananas amid increasing concerns about increasing costs.

Business Agenda

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