The Japanese Economy Declines as Overseas Sales Face Impact by US Trade Duties
The Japanese economic system has recorded a contraction for the first time in a year and a half, mainly caused by declining exports due to newly imposed American trade duties.
Group of Seven Growth Standings
Japan stands as the first Group of Seven nation to announce an GDP decline in the previous quarter.
With the United States still needing to publish its GDP figures for Q3 2025, the present G7 growth standings indicate:
- France: 0.5 percent quarterly growth
- United Kingdom: 0.1 percent
- Canada: +0.1% (preliminary figure)
- German economy: 0%
- Italy: 0%
- Japan: -0.4%
Travel Shares Slump amid Political Rift with Beijing
Alongside the economic contraction, Japan is facing an intensifying political dispute with China concerning Taiwan.
Shares in Japanese tourism and consumer businesses have declined sharply after China urged its nationals to avoid traveling to Japan.
This action by Chinese authorities escalated a diplomatic feud that was triggered by remarks from Tokyo's new PM about the possibility of deploying troops in the case of a potential Chinese attack on Taiwan.
The development led to a wave of sell-offs across Japan's tourism-related shares.
- Oriental Land stock dropped by 5.7%
- Isetan Mitsukoshi plummeted by 11.3 percent
- The national carrier declined by 3.75%
"The ongoing dispute over Taiwan and China's advisory discouraging travel to Japan introduces short-term difficulties for consumer-facing sectors.
"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and tourism services especially at risk."
GDP Decline Breakdown
Japan's gross domestic product dropped by 0.4 percent in the third quarter, as manufacturers' overseas shipments were impacted by duties imposed by the United States recently.
Overseas shipments were a major 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 American government had threatened Japan with a new 25 percent tariff on its goods, which was later lowered to 15% when the two countries concluded a trade deal.
Consumer spending also declined, by 0.3% quarter-on-quarter.
On an annualized basis, Japan's GDP contracted by 1.8% in the quarter through September.
"Japan's economy was strong in the initial six months of this year and the latest GDP data showed that growth is halted for now.
I anticipate Japan's economy to be back on a gradual recovery trend going forward."
The US administration has lately recognized the impact of tariffs on US consumers, reducing tariffs on food imports including meat, tomatoes, coffee and bananas amid growing concerns about increasing costs.
Business Calendar
- 8am GMT: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
