Japan's Economy Shrinks while Overseas Sales Are Hit by US Tariffs
Japan's economy has shown a decline for the first time in a year and a half, mainly driven by declining exports as a result of newly imposed American tariffs.
G7 Growth Standings
Japan stands as the initial Group of Seven economy to report an economic contraction in the most recent three-month period.
As the United States yet to release its gross domestic product figures for Q3 2025, the current Group of Seven growth standings display:
- The French economy: 0.5 percent expansion
- UK: 0.1 percent
- Canada: 0.1 percent (preliminary figure)
- German economy: zero growth
- Italy: 0%
- Japan: -0.4%
Tourism Shares Slump amid Diplomatic Dispute with Beijing
In addition to the economic contraction, Japan is dealing with an intensifying political tension with China regarding Taiwan.
Stocks in Japanese tourism and consumer companies have fallen significantly after China recommended its residents to refrain from traveling to Japan.
This move by Chinese authorities heightened a diplomatic feud that was triggered by statements from Tokyo's recently appointed prime minister about the potential of deploying forces in the case of a potential Chinese invasion on Taiwan.
The development led to a wave of selling across Japanese leisure stocks.
- Oriental Land stock dropped by 5.7 percent
- Isetan Mitsukoshi tumbled by 11.3 percent
- Japan Airlines fell by 3.75%
"The China-Japan tension over Taiwan and Beijing's travel warning discouraging visits to Japan creates near-term difficulties for consumer-facing sectors.
"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making department stores, luxury retail, and tourism services especially at risk."
Economic Decline Details
Japan's GDP fell by 0.4% in the third quarter, as industrial overseas shipments were hit by duties imposed by the United States recently.
Exports were a major factor of the decline, falling by 1.2% compared with the previous quarter, and were 4.5% lower than a year ago.
Previously, the American government had proposed Japan with a new 25% tariff on its goods, which was later reduced to 15 percent when the two countries concluded a trade agreement.
Consumer spending also fell, by 0.3% quarter-on-quarter.
On an annual basis, Japan's real gross domestic product shrank by 1.8% in the three months through September.
"Japan's economy was stable in the first half of this year and today's GDP figures showed that growth is halted temporarily.
I expect Japan's economy to be returning on a moderate recovery trend going forward."
The US administration has recently recognized the impact of tariffs on US consumers, lowering tariffs on food imports including meat, produce, coffee and fruits amid increasing concerns about rising costs.
Economic Calendar
- 8am GMT: Switzerland GDP report for Q3
- 3pm GMT: US construction spending data for August
