The Japanese Economy Shrinks as Exports Suffer by American Tariffs
The Japanese economic system has shown a decline for the first time in a year and a half, primarily driven by declining overseas shipments because of recent US trade duties.
G7 Growth Rankings
Japan stands as the initial G7 economy to disclose an output shrinkage in the most recent three-month period.
With the United States yet to publish its GDP figures for Q3 2025, the current G7 growth rankings show:
- The French economy: 0.5 percent quarterly growth
- United Kingdom: +0.1%
- Canadian economy: 0.1 percent (preliminary figure)
- German economy: zero growth
- Italy: no growth
- Japanese economy: negative 0.4 percent
Tourism Shares Decline during Diplomatic Dispute with Beijing
Alongside the GDP decline, Japan is facing an escalating political conflict with China concerning Taiwan.
Stocks in Japan's tourism and retail companies have declined significantly after China recommended its residents to avoid visiting to Japan.
This move by Beijing escalated a diplomatic feud that was sparked by statements from Japan's recently appointed PM about the potential of sending troops in the event of a potential Chinese invasion on Taiwan.
The situation triggered a surge of selling across Japan's leisure stocks.
- Oriental Land stock dropped by 5.7%
- Isetan Mitsukoshi tumbled by 11.3%
- The national carrier declined by 3.75%
"The ongoing tension over Taiwan and Beijing's advisory discouraging travel to Japan introduces short-term headwinds for consumer-facing sectors.
"Chinese visitors represent roughly 25% of Japan's international visitors, making department stores, luxury retail, and tourism services especially vulnerable."
Economic Decline Details
Japan's GDP dropped by 0.4% in the July-September quarter, as manufacturers' exports were impacted by duties levied by the US recently.
Exports were a primary factor of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a year ago.
Earlier this year, the US administration had proposed Japan with a new 25% tariff on its goods, which was later reduced to 15 percent when the two countries concluded a trade agreement.
Private demand also fell, by 0.3% quarter-on-quarter.
On an annual basis, Japan's real gross domestic product contracted by 1.8% in the quarter through September.
"Japan's economy was stable in the first half of this year and the latest GDP data showed that growth is paused for now.
I anticipate Japan's economy to be back on a gradual growth trend going forward."
The White House has recently recognized the effect of tariffs on US consumers, lowering tariffs on imported food products including meat, tomatoes, coffee and bananas amid increasing concerns about increasing costs.
Economic Agenda
- 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
- 3pm GMT: US construction spending data for August
