The Japanese Economic Output Contracts as Exports Are Hit by US Tariffs

Japan's economy has experienced a contraction for the initial time in six quarters, mainly driven by falling overseas shipments because of recent US tariffs.

G7 Growth Leaderboard

The Japanese economy stands as the first Group of Seven nation to report an output shrinkage in the previous three-month period.

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

• The French economy: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canada: +0.1% (provisional estimate)
• Germany: 0%
• Italian economy: 0%
• Japan: -0.4%

Tourism Shares Decline during Diplomatic Dispute with China

Alongside the economic contraction, Japan is facing an intensifying diplomatic conflict with China regarding Taiwan.

Shares in Japan's tourism and retail firms have declined noticeably after China urged its nationals to refrain from traveling to Japan.

This decision by Chinese authorities intensified a diplomatic feud that was triggered by remarks from Tokyo's new prime minister about the potential of sending troops in the event of a hypothetical Chinese invasion on Taiwan.

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

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

"The China-Japan tension over Taiwan and Beijing's advisory discouraging travel to Japan introduces short-term headwinds for retail and hospitality sectors.

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

Economic Decline Details

Japan's GDP fell by 0.4% in the third quarter, as industrial exports were affected by duties imposed by the United States recently.

Overseas shipments were a primary factor of the decline, 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 American government had proposed Japan with a new 25% tariff on its goods, which was later reduced to 15% when the two nations reached a trade deal.

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

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

"Japan's economy was stable in the initial six months of this year and the latest GDP figures showed that growth is paused for now.

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

The White House has lately recognized the effect of tariffs on US consumers, reducing duties on imported food products including meat, tomatoes, coffee and bananas amid growing concerns about increasing costs.

Economic Calendar

• 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August