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Japan's economy has recorded a contraction for the first time in six quarters, primarily caused by weakening overseas shipments as a result of recent US tariffs.

G7 Economic Standings

Japan has become the first G7 country to announce an output shrinkage in the latest quarter.

With the US yet to publish its GDP figures for Q3 2025, the current Group of Seven growth rankings show:

• France: 0.5 percent quarterly growth
• UK: +0.1%
• Canada: 0.1 percent (preliminary figure)
• German economy: 0%
• Italian economy: 0%
• Japanese economy: -0.4%

Tourism Shares Decline during Diplomatic Dispute with China

Alongside the GDP decline, Japan is dealing with an escalating diplomatic tension with China regarding Taiwan.

Shares in Japan's tourism and consumer firms have declined sharply after China urged its residents to avoid visiting to Japan.

This decision by Beijing escalated a diplomatic feud that was triggered by remarks from Tokyo's recently appointed PM about the potential of deploying troops in the case of a hypothetical Chinese invasion on Taiwan.

The development triggered a wave of selling across Japan's tourism-related shares.

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

"The ongoing dispute over Taiwan and Beijing's advisory discouraging visits to Japan introduces near-term challenges for consumer-facing sectors.

"Chinese visitors represent roughly 25% of Japan's international visitors, making retail outlets, luxury retail, and tourism services particularly vulnerable."

Economic Contraction Breakdown

Japanese GDP declined by 0.4 percent in the third quarter, as manufacturers' exports were impacted by tariffs imposed by the United States recently.

Overseas shipments were a major factor of the contraction, falling by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a year ago.

Earlier this year, the US administration had threatened Japan with a additional 25 percent tariff on its goods, which was later lowered to 15 percent when the two countries concluded a trade agreement.

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

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

"Japan's economy was strong in the first half of this year and the latest GDP figures showed that growth is paused for now.

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

The White House has recently recognized the effect of tariffs on US consumers, lowering duties on food imports including meat, produce, coffee and fruits amid increasing concerns about rising costs.

Business Agenda

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