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Japan's economy has recorded a decline for the initial time in a year and a half, primarily driven by declining exports because of newly imposed US trade duties.

Group of Seven Growth Standings

The Japanese economy has become the first Group of Seven nation to announce an GDP decline in the most recent quarter.

As the US yet to publish its gross domestic product figures for Q3 2025, the current Group of Seven growth rankings display:

• France: 0.5 percent expansion
• United Kingdom: +0.1%
• Canada: 0.1 percent (provisional estimate)
• German economy: zero growth
• Italian economy: no growth
• Japanese economy: -0.4%

Tourism Stocks Slump during Political Rift with Beijing

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

Stocks in Japan's travel and consumer companies have fallen significantly after China urged its nationals to refrain from traveling to Japan.

This action by Chinese authorities intensified a diplomatic feud that was initiated by remarks from Japan's new PM about the potential of sending forces in the event of a hypothetical Chinese invasion on Taiwan.

The situation triggered a surge of sell-offs across Japan's tourism-related shares.

• Oriental Land shares fell by 5.7%
• The department store chain plummeted by 11.3 percent
• The national carrier declined by 3.75%

"The China-Japan dispute over Taiwan and China's advisory discouraging visits to Japan introduces near-term headwinds for consumer-facing sectors.

"Tourists from China account for roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and hospitality especially vulnerable."

GDP Contraction Details

Japan's gross domestic product dropped by 0.4% in the third quarter, as manufacturers' exports were affected by tariffs imposed by the US this year.

Overseas shipments were a primary factor of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5% lower than a the same period last year.

Earlier this year, the US administration had threatened Japan with a new 25% tariff on its goods, which was later lowered to 15% when the two nations reached a trade deal.

Private demand also fell, by 0.3% compared to the previous 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 paused temporarily.

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

The US administration has recently recognized the effect of tariffs on Americans, reducing duties on food imports including meat, tomatoes, coffee and bananas amid increasing concerns about increasing costs.

Economic Calendar

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