Japan's Economic Output Shrinks as Overseas Sales Suffer by US Tariffs

Japan's economy has experienced a decline for the initial time in six quarters, primarily driven by declining overseas shipments because of recent American tariffs.

Group of Seven Economic Standings

The Japanese economy stands as the first Group of Seven nation to announce an GDP decline in the latest three-month period.

With the US yet to publish its gross domestic product figures for Q3 2025, the present G7 economic rankings display:

• France: +0.5% quarterly growth
• UK: 0.1 percent
• Canada: +0.1% (provisional estimate)
• German economy: zero growth
• Italy: no growth
• Japanese economy: -0.4%

Tourism Stocks Slump amid Political Rift with China

Alongside the economic contraction, Japan is dealing with an escalating political tension with China concerning Taiwan.

Stocks in Japanese tourism and retail firms have dropped significantly after China recommended its residents to avoid traveling to Japan.

This decision by Beijing escalated a diplomatic feud that was sparked by comments from Tokyo's recently appointed PM about the potential of sending forces in the case of a hypothetical Chinese attack on Taiwan.

The development caused a wave of sell-offs across Japan's tourism-related shares.

• Oriental Land stock dropped by 5.7 percent
• The department store chain tumbled by 11.3 percent
• The national carrier fell by 3.75 percent

"The ongoing tension over Taiwan and Beijing's advisory discouraging travel to Japan brings near-term headwinds for consumer-facing sectors.

"Tourists from China account for roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and tourism services especially at risk."

Economic Decline Details

Japanese GDP declined by 0.4 percent in the July-September quarter, as industrial overseas shipments were affected by tariffs levied by the US this year.

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

Earlier this year, the American government had threatened Japan with a additional 25 percent tariff on its goods, which was later lowered to 15% when the two nations reached 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.

"The Japanese economic situation was solid in the initial six months of this year and today's GDP data showed that momentum is halted for now.

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

The US administration has recently acknowledged the impact of tariffs on Americans, reducing tariffs on food imports including meat, produce, beverages and fruits amid growing concerns about increasing costs.

Business Calendar

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August