Japan's Economic Output Shrinks while Exports Are Hit by American Tariffs
The Japanese economic system has recorded a decline for the first time in six quarters, mainly caused by declining overseas shipments because of newly imposed American tariffs.
Group of Seven Growth Standings
The Japanese economy stands as the first Group of Seven nation to report an output shrinkage in the most recent quarter.
With the United States yet to publish its gross domestic product figures for Q3 2025, the current Group of Seven growth leaderboard display:
- France: +0.5% quarterly growth
- United Kingdom: 0.1 percent
- Canadian economy: 0.1 percent (preliminary figure)
- Germany: 0%
- Italy: no growth
- Japan: -0.4%
Travel Shares Slump amid Diplomatic Dispute with China
In addition to the GDP decline, Japan is experiencing an intensifying political tension with China regarding Taiwan.
Shares in Japanese tourism and consumer companies have declined noticeably after China advised its nationals to refrain from traveling to Japan.
This decision by Beijing intensified a political dispute that was initiated by comments from Japan's new prime minister about the potential of sending forces in the case of a potential Chinese attack on Taiwan.
The development led to a wave of sell-offs across Japan's tourism-related shares.
- Oriental Land shares dropped by 5.7%
- Isetan Mitsukoshi tumbled by 11.3 percent
- The national carrier fell by 3.75%
"The China-Japan tension over Taiwan and China's travel warning advising against travel to Japan brings short-term difficulties for consumer-facing sectors.
"Chinese visitors account for roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services particularly vulnerable."
Economic Decline Details
Japan's GDP dropped by 0.4 percent in the third quarter, as manufacturers' overseas shipments were hit by tariffs imposed by the US this year.
Exports were a major driver of the contraction, falling by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a year ago.
Previously, the American government had threatened Japan with a additional 25% tariff on its goods, which was later lowered to 15 percent when the two nations reached a trade deal.
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.
"The Japanese economic situation was stable in the first half of this year and the latest GDP figures showed that growth is paused for now.
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 Americans, reducing tariffs on imported food products including beef, produce, coffee and bananas amid growing concerns about rising costs.
Business Agenda
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
