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Japan's economy has recorded a decline for the first time in six quarters, primarily driven by declining exports because of newly imposed US trade duties.

Group of Seven Economic Leaderboard

Japan stands as the first Group of Seven nation to disclose an output shrinkage in the latest quarter.

As the US still needing to release its gross domestic product figures for Q3 2025, the present G7 growth leaderboard indicate:

• The French economy: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canadian economy: +0.1% (provisional estimate)
• Germany: zero growth
• Italian economy: no growth
• Japan: negative 0.4 percent

Tourism Shares Slump amid Political Dispute with China

Alongside the GDP decline, Japan is facing an growing diplomatic conflict with China regarding Taiwan.

Shares in Japanese travel and retail companies have fallen significantly after China urged its residents to refrain from traveling to Japan.

This move by Chinese authorities escalated a diplomatic feud that was initiated by remarks from Tokyo's recently appointed PM about the possibility of deploying troops in the event of a hypothetical Chinese invasion on Taiwan.

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

• The Tokyo Disneyland operator shares fell by 5.7%
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier declined by 3.75%

"The China-Japan tension over Taiwan and Beijing's advisory advising against visits to Japan brings near-term difficulties for retail and hospitality sectors.

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

GDP Contraction Breakdown

Japanese GDP declined by 0.4% in the July-September quarter, as industrial exports were hit by tariffs levied by the United States recently.

Exports were a key factor of the decline, falling by 1.2% compared with the previous quarter, and were 4.5% 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 reached a trade deal.

Private demand also fell, by 0.3% quarter-on-quarter.

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

"Japan's economy was strong in the first half of this year and today's GDP data showed that momentum is halted temporarily.

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

The US administration has recently recognized the effect of tariffs on Americans, reducing duties on imported food products including meat, tomatoes, beverages and fruits amid growing concerns about increasing costs.

Economic Calendar

• 8am GMT: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August