The Japanese Economy Shrinks while Overseas Sales Are Hit by US Trade Duties

The Japanese economic system has shown a contraction for the initial time in six quarters, primarily driven by falling overseas shipments due to newly imposed American trade duties.

G7 Growth Rankings

Japan has become the initial G7 economy to report an output shrinkage in the latest quarter.

As the United States yet to publish its gross domestic product data for Q3 2025, the current Group of Seven economic leaderboard show:

• France: +0.5% expansion
• UK: +0.1%
• Canada: +0.1% (provisional estimate)
• German economy: 0%
• Italy: 0%
• Japanese economy: negative 0.4 percent

Travel Stocks Slump during Diplomatic Rift with Beijing

In addition to the economic contraction, Japan is facing an growing diplomatic tension with China regarding Taiwan.

Shares in Japanese tourism and consumer companies have dropped noticeably after China urged its residents to avoid traveling to Japan.

This decision by Beijing heightened a diplomatic feud that was sparked by remarks from Tokyo's new PM about the potential of deploying troops in the case of a hypothetical Chinese attack on Taiwan.

The development led to a wave of selling across Japan's leisure shares.

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

"The ongoing tension over Taiwan and China's advisory discouraging travel to Japan creates near-term difficulties for consumer-facing sectors.

"Chinese visitors account for roughly 25% of Japan's inbound traffic, making department stores, luxury retail, and hospitality particularly vulnerable."

GDP Contraction Details

Japan's gross domestic product declined by 0.4% in the July-September quarter, as industrial exports were hit by duties levied by the US this year.

Overseas shipments were a major driver of the contraction, falling by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.

Previously, the US administration had threatened Japan with a new 25 percent tariff on its goods, which was later reduced to 15% when the two nations concluded a trade deal.

Consumer spending also declined, by 0.3% compared to the previous quarter.

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

"The Japanese economic situation was solid in the initial six months of this year and today's GDP figures showed that growth is halted temporarily.

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

The US administration has recently acknowledged the impact of tariffs on US consumers, lowering duties on food imports including meat, tomatoes, coffee and fruits amid growing concerns about rising costs.

Business Calendar

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