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Japan's economy has recorded a decline for the first time in six quarters, largely driven by weakening overseas shipments due to newly imposed American tariffs.

G7 Economic Rankings

Japan has become the initial G7 economy to announce an output shrinkage in the previous quarter.

As the US still needing to publish its gross domestic product data for Q3 2025, the present G7 growth rankings display:

• The French economy: +0.5% expansion
• UK: +0.1%
• Canadian economy: 0.1 percent (provisional estimate)
• Germany: 0%
• Italy: 0%
• Japan: -0.4%

Tourism Stocks Decline amid Diplomatic Dispute with China

In addition to the GDP decline, Japan is experiencing an growing political conflict with China concerning Taiwan.

Shares in Japanese tourism and retail companies have fallen sharply after China urged its residents to avoid visiting to Japan.

This action by Chinese authorities escalated a diplomatic feud that was sparked by statements from Japan's recently appointed prime minister about the potential of sending troops in the event of a hypothetical Chinese invasion on Taiwan.

The situation caused a wave of selling across Japanese tourism-related stocks.

• The Tokyo Disneyland operator stock dropped by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3 percent
• Japan Airlines fell by 3.75%

"The China-Japan dispute over Taiwan and China's travel warning discouraging travel to Japan brings near-term headwinds for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's inbound traffic, making department stores, luxury retail, and hospitality especially at risk."

GDP Decline Details

Japanese gross domestic product declined by 0.4 percent in the third quarter, as manufacturers' overseas shipments were affected by duties levied by the US this year.

Overseas shipments were a key factor of the contraction, dropping by 1.2 percent compared with the April-June 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 goods, which was later reduced to 15% when the two countries reached a trade deal.

Consumer spending also declined, by 0.3% quarter-on-quarter.

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

"Japan's economy was solid in the initial six months of this year and the latest GDP figures showed that growth is paused temporarily.

I anticipate Japan's economy to be back on a gradual recovery trend going forward."

The White House has lately acknowledged the effect of tariffs on Americans, lowering duties on food imports including meat, produce, beverages and fruits amid increasing concerns about increasing costs.

Economic Calendar

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