The Japanese Economy Contracts as Exports Are Hit by US Trade Duties
The Japanese economic system has experienced a decline for the initial time in six quarters, largely driven by weakening overseas shipments due to recent US trade duties.
Group of Seven Growth Rankings
Japan stands as the first Group of Seven country to report an economic contraction in the most recent three-month period.
As the US yet to publish its GDP figures for Q3 2025, the present Group of Seven growth rankings indicate:
- France: 0.5 percent quarterly growth
- UK: +0.1%
- Canada: 0.1 percent (preliminary figure)
- Germany: zero growth
- Italian economy: 0%
- Japan: negative 0.4 percent
Travel Shares Slump amid Diplomatic Rift with China
In addition to the GDP decline, Japan is facing an escalating diplomatic tension with China regarding Taiwan.
Stocks in Japanese travel and consumer companies have fallen sharply after China urged its nationals to refrain from visiting to Japan.
This decision by Chinese authorities escalated a diplomatic feud that was sparked by comments from Japan's new PM about the potential of sending forces in the event of a potential Chinese invasion on Taiwan.
The situation caused a surge of selling across Japanese tourism-related shares.
- Oriental Land stock fell by 5.7 percent
- The department store chain plummeted by 11.3%
- Japan Airlines declined by 3.75%
"The China-Japan tension over Taiwan and China's advisory discouraging visits to Japan creates near-term challenges for consumer-facing sectors.
"Tourists from China account for roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and hospitality particularly at risk."
Economic Decline Breakdown
Japanese gross domestic product fell by 0.4 percent in the July-September quarter, as industrial overseas shipments were hit by duties 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 year ago.
Earlier this year, the US administration had proposed Japan with a new 25% tariff on its goods, which was later lowered to 15% when the two countries reached a trade deal.
Private demand also declined, by 0.3 percent 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.
"Japan's economy was stable in the first half of this year and the latest GDP figures showed that momentum is halted temporarily.
I expect Japan's economy to be back on a moderate growth trend going forward."
The White House has recently recognized the effect of tariffs on Americans, reducing tariffs on imported food products including meat, produce, coffee and fruits amid increasing concerns about rising costs.
Business Calendar
- 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
- 3pm GMT: US construction spending data for August
