The Japanese Economy Shrinks as Overseas Sales Face Impact by US Trade Duties
Japan's economy has experienced a contraction for the first time in a year and a half, primarily driven by falling exports due to newly imposed American tariffs.
G7 Growth Leaderboard
Japan stands as the initial Group of Seven economy to report an GDP decline in the latest quarter.
With the US still needing to publish its gross domestic product data for Q3 2025, the present G7 growth rankings display:
- France: 0.5 percent expansion
- United Kingdom: 0.1 percent
- Canada: 0.1 percent (provisional estimate)
- German economy: zero growth
- Italy: 0%
- Japanese economy: negative 0.4 percent
Travel Shares Slump amid Political Dispute with China
In addition to the GDP decline, Japan is experiencing an intensifying political tension with China concerning Taiwan.
Shares in Japanese travel and consumer firms have fallen sharply after China urged its residents to avoid traveling to Japan.
This move by Chinese authorities intensified a political dispute that was triggered by remarks from Tokyo's recently appointed PM about the possibility of sending troops in the event of a hypothetical Chinese invasion on Taiwan.
The development triggered a wave of selling across Japan's tourism-related stocks.
- The Tokyo Disneyland operator stock fell by 5.7%
- Isetan Mitsukoshi plummeted by 11.3%
- Japan Airlines fell by 3.75%
"The ongoing dispute over Taiwan and Beijing's travel warning discouraging travel to Japan brings short-term challenges for consumer-facing sectors.
"Chinese visitors account for roughly 25% of Japan's international visitors, making department stores, luxury retail, and tourism services especially vulnerable."
GDP Contraction Breakdown
Japanese gross domestic product declined by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were affected by duties imposed by the US recently.
Exports were a key driver of the decline, dropping by 1.2% 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 percent when the two countries concluded a trade agreement.
Consumer spending also fell, by 0.3 percent quarter-on-quarter.
On an annualized basis, Japan's GDP 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 halted temporarily.
I expect Japan's economy to be back on a moderate recovery trend going forward."
The White House has recently recognized the effect of tariffs on Americans, reducing tariffs on imported food products including beef, produce, coffee and bananas amid growing concerns about rising costs.
Economic Agenda
- 8am GMT: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
