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The Japanese economic system has experienced a contraction for the initial time in six quarters, largely driven by declining exports because of newly imposed US trade duties.

G7 Growth Rankings

Japan stands as the initial Group of Seven nation to announce an economic contraction in the most recent three-month period.

With the United States yet to publish its gross domestic product figures for the third quarter, the current G7 economic standings indicate:

• The French economy: +0.5% quarterly growth
• UK: 0.1 percent
• Canadian economy: 0.1 percent (provisional estimate)
• German economy: 0%
• Italy: 0%
• Japanese economy: negative 0.4 percent

Travel Shares Slump amid Diplomatic Dispute with Beijing

In addition to the economic contraction, Japan is experiencing an growing political conflict with China regarding Taiwan.

Stocks in Japanese travel and consumer firms have dropped significantly after China recommended its citizens to avoid visiting to Japan.

This decision by Chinese authorities intensified a political dispute that was sparked by remarks from Tokyo's new prime minister about the possibility of deploying troops in the event of a hypothetical Chinese invasion on Taiwan.

The development triggered a surge of sell-offs across Japan's leisure shares.

• The Tokyo Disneyland operator shares fell by 5.7%
• Isetan Mitsukoshi tumbled by 11.3%
• Japan Airlines declined by 3.75%

"The ongoing dispute over Taiwan and Beijing's advisory discouraging travel to Japan creates short-term challenges for retail and hospitality sectors.

"Tourists from China represent roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and tourism services particularly vulnerable."

Economic Contraction Details

Japanese GDP declined by 0.4 percent in the July-September quarter, as industrial overseas shipments were impacted by tariffs imposed by the United States this year.

Overseas shipments were a primary driver of the contraction, falling by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.

Earlier this year, the American government had threatened Japan with a new 25% tariff on its goods, which was later reduced to 15% when the two nations concluded a trade agreement.

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

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

"Japan's economy was solid in the first half of this year and today's GDP figures showed that momentum is paused for now.

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

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

Economic Calendar

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