The Japanese Economic Output Declines while Overseas Sales Suffer by American Trade Duties

The Japanese economic system has recorded a drop for the first time in a year and a half, primarily driven by weakening exports as a result of newly imposed US trade duties.

G7 Economic Rankings

Japan stands as the initial Group of Seven country to report an output shrinkage in the previous three-month period.

With the United States still needing to release its GDP figures for Q3 2025, the current Group of Seven economic leaderboard indicate:

• The French economy: 0.5 percent expansion
• UK: 0.1 percent
• Canada: +0.1% (provisional estimate)
• German economy: 0%
• Italian economy: 0%
• Japanese economy: -0.4%

Travel Shares Decline amid Diplomatic Dispute with China

In addition to the economic contraction, Japan is facing an escalating diplomatic tension with China regarding Taiwan.

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

This move by Chinese authorities escalated a political dispute that was sparked by remarks from Tokyo's recently appointed PM about the potential of sending troops in the case of a potential Chinese attack on Taiwan.

The development led to a wave of sell-offs across Japan's leisure shares.

• The Tokyo Disneyland operator shares dropped by 5.7%
• Isetan Mitsukoshi tumbled by 11.3 percent
• The national carrier declined by 3.75 percent

"The ongoing dispute over Taiwan and Beijing's travel warning advising against travel to Japan brings short-term difficulties for consumer-facing sectors.

"Chinese visitors represent roughly 25% of Japan's inbound traffic, making department stores, luxury retail, and hospitality especially vulnerable."

GDP Contraction Breakdown

Japanese GDP fell by 0.4% in the third quarter, as manufacturers' overseas shipments were affected by tariffs imposed by the United States this year.

Exports were a primary factor of the decline, falling by 1.2 percent compared with the previous quarter, and were 4.5% lower than a year ago.

Earlier this year, the US administration had proposed Japan with a additional 25 percent tariff on its products, which was later reduced to 15% when the two countries reached a trade agreement.

Private demand also declined, by 0.3% compared to the previous quarter.

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

"Japan's economy was solid in the initial six months of this year and today's GDP data showed that momentum is paused temporarily.

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

The White House has recently acknowledged the effect of tariffs on US consumers, lowering duties on imported food products including meat, produce, beverages and bananas amid growing concerns about increasing costs.

Economic Agenda

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