Japan's Economic Output Contracts as Exports Face Impact by US Trade Duties

The Japanese economic system has shown a decline for the first time in a year and a half, mainly caused by declining exports as a result of recent American tariffs.

G7 Economic Rankings

Japan has become the first Group of Seven country to announce an GDP decline in the most recent quarter.

As the United States still needing to release its GDP data for Q3 2025, the current Group of Seven growth leaderboard display:

• France: 0.5 percent quarterly growth
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (provisional estimate)
• Germany: zero growth
• Italy: 0%
• Japanese economy: negative 0.4 percent

Tourism Shares Decline during Diplomatic Dispute with Beijing

Alongside the GDP decline, Japan is dealing with an growing diplomatic tension with China regarding Taiwan.

Shares in Japan's travel and retail companies have declined significantly after China recommended its nationals to refrain from visiting to Japan.

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

The development led to a wave of selling across Japanese leisure stocks.

• The Tokyo Disneyland operator shares dropped by 5.7 percent
• The department store chain plummeted by 11.3 percent
• The national carrier declined by 3.75%

"The ongoing dispute over Taiwan and China's advisory discouraging visits to Japan brings short-term challenges for retail and hospitality sectors.

"Tourists from China represent roughly 25 percent of Japan's international visitors, making department stores, luxury retail, and tourism services especially vulnerable."

GDP Decline Breakdown

Japan's GDP dropped by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were impacted by tariffs levied by the US recently.

Exports were a primary driver of the decline, falling by 1.2 percent compared with the previous quarter, and were 4.5% lower than a the same period last year.

Earlier this year, the American government had proposed Japan with a additional 25% tariff on its goods, which was later lowered to 15% when the two nations reached a trade deal.

Consumer spending also fell, by 0.3 percent quarter-on-quarter.

On an annual basis, Japan's GDP shrank by 1.8 percent in the three months through September.

"Japan's economy was strong in the first half of this year and today's GDP figures showed that momentum is paused temporarily.

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

The White House has lately recognized the effect of tariffs on US consumers, lowering duties on food imports including beef, tomatoes, coffee and bananas amid increasing concerns about increasing costs.

Business Agenda

• 8am GMT: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August