The Japanese Economic Output Shrinks while Exports Face Impact by US Trade Duties

Japan's economy has shown a decline for the initial time in a year and a half, primarily caused by falling exports as a result of recent US trade duties.

Group of Seven Economic Rankings

The Japanese economy stands as the initial G7 economy to report an GDP decline in the most recent quarter.

As the US yet to publish its GDP figures for Q3 2025, the current G7 economic standings show:

• The French economy: 0.5 percent quarterly growth
• UK: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• German economy: 0%
• Italian economy: 0%
• Japan: -0.4%

Travel Shares Decline amid Political Rift with China

Alongside the economic contraction, Japan is experiencing an intensifying political tension with China concerning Taiwan.

Stocks in Japanese travel and consumer businesses have fallen significantly after China urged its nationals to refrain from traveling to Japan.

This action by Chinese authorities heightened a diplomatic feud that was initiated by comments from Tokyo's new PM about the possibility of deploying troops in the event of a potential Chinese attack on Taiwan.

The development triggered a wave of selling across Japanese tourism-related stocks.

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

"The China-Japan tension over Taiwan and China's travel warning advising against travel to Japan introduces near-term challenges for consumer-facing sectors.

"Chinese visitors account for roughly 25% of Japan's inbound traffic, making retail outlets, high-end shopping, and hospitality particularly vulnerable."

GDP Decline Details

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

Exports were a major factor of the decline, dropping by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a year ago.

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

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

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

"The Japanese economic situation was solid in the first half of this year and the latest GDP figures showed that growth is halted temporarily.

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

The US administration has lately recognized the impact of tariffs on Americans, reducing duties on food imports including beef, tomatoes, beverages and fruits amid increasing concerns about increasing costs.

Business Calendar

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