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Japan's economy has recorded a contraction for the first time in six quarters, largely driven by weakening overseas shipments because of recent US tariffs.

G7 Economic Leaderboard

The Japanese economy stands as the first G7 country to announce an output shrinkage in the previous quarter.

As the US still needing to publish its GDP data for Q3 2025, the present Group of Seven economic standings show:

• France: +0.5% expansion
• UK: +0.1%
• Canada: +0.1% (preliminary figure)
• Germany: zero growth
• Italian economy: 0%
• Japan: -0.4%

Travel Stocks Slump amid Political Dispute with Beijing

Alongside the economic contraction, Japan is experiencing an growing political dispute with China concerning Taiwan.

Stocks in Japan's tourism and consumer firms have fallen noticeably after China advised its nationals to refrain from traveling to Japan.

This action by Chinese authorities intensified a political dispute that was initiated by comments from Japan's new prime minister about the potential of sending forces in the event of a potential Chinese invasion on Taiwan.

The situation caused a surge of sell-offs across Japan's tourism-related stocks.

• Oriental Land shares fell by 5.7%
• Isetan Mitsukoshi tumbled by 11.3 percent
• The national carrier fell by 3.75 percent

"The China-Japan dispute over Taiwan and Beijing's advisory advising against visits to Japan creates short-term headwinds for retail and hospitality sectors.

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

GDP Contraction Details

Japanese GDP dropped by 0.4 percent in the third quarter, as industrial exports were impacted by duties levied by the US this year.

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

Earlier this year, the US administration had proposed Japan with a new 25% tariff on its goods, which was later reduced to 15% when the two countries concluded a trade deal.

Private demand also declined, by 0.3% compared to the previous quarter.

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

"The Japanese economic situation was solid 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 growth trend going forward."

The White House has recently recognized the impact of tariffs on US consumers, reducing duties on food imports including beef, tomatoes, beverages and bananas amid growing concerns about increasing costs.

Business Agenda

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