🔗 Share this article

Japan's economy has shown a drop for the initial time in six quarters, mainly driven by declining exports as a result of recent American trade duties.

G7 Growth Rankings

Japan has become the first G7 economy to report an output shrinkage in the previous three-month period.

As the US still needing to publish its GDP figures for the third quarter, the present G7 economic rankings show:

• The French economy: +0.5% expansion
• UK: 0.1 percent
• Canadian economy: 0.1 percent (provisional estimate)
• Germany: zero growth
• Italian economy: no growth
• Japanese economy: negative 0.4 percent

Travel Stocks Slump amid Diplomatic Rift with Beijing

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

Stocks in Japan's travel and consumer firms have dropped noticeably after China advised its residents to refrain from traveling to Japan.

This move by Beijing escalated a diplomatic feud that was triggered by comments from Japan's recently appointed prime minister about the potential of sending forces in the case of a potential Chinese invasion on Taiwan.

The situation caused a surge of selling across Japanese leisure stocks.

• Oriental Land shares fell by 5.7%
• The department store chain tumbled by 11.3 percent
• Japan Airlines declined by 3.75 percent

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

"Chinese visitors account for roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and hospitality particularly vulnerable."

Economic Contraction Details

Japan's gross domestic product fell by 0.4% in the third quarter, as manufacturers' overseas shipments were hit by tariffs levied by the United States this year.

Exports were a key factor of the contraction, falling by 1.2 percent compared with the April-June quarter, and were 4.5% lower than a the same period last year.

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

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

On an annualized basis, Japan's real gross domestic product contracted by 1.8 percent in the quarter through September.

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

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

The White House has lately acknowledged the effect of tariffs on US consumers, lowering tariffs on imported food products including meat, produce, beverages and fruits amid increasing concerns about increasing costs.

Economic Agenda

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