The Japanese Economic Output Shrinks as Exports Face Impact by American Tariffs
The Japanese economic system has shown a decline for the first time in six quarters, largely caused by falling overseas shipments as a result of newly imposed American tariffs.
Group of Seven Economic Standings
The Japanese economy has become the first Group of Seven nation to disclose an output shrinkage in the most recent quarter.
As the US still needing to release its GDP figures for Q3 2025, the current Group of Seven economic rankings display:
- The French economy: 0.5 percent quarterly growth
- UK: +0.1%
- Canada: 0.1 percent (preliminary figure)
- German economy: zero growth
- Italy: 0%
- Japanese economy: negative 0.4 percent
Travel Shares Slump amid Political Rift with Beijing
Alongside the economic contraction, Japan is dealing with an intensifying diplomatic tension with China regarding Taiwan.
Stocks in Japan's travel and consumer businesses have fallen sharply after China urged its citizens to refrain from traveling to Japan.
This decision by Chinese authorities escalated a diplomatic feud that was initiated by comments from Tokyo's new prime minister about the potential of sending forces in the case of a hypothetical Chinese attack on Taiwan.
The situation triggered a surge of selling across Japanese tourism-related shares.
- Oriental Land shares fell by 5.7 percent
- Isetan Mitsukoshi plummeted by 11.3 percent
- The national carrier declined by 3.75%
"The ongoing tension over Taiwan and Beijing's advisory advising against visits to Japan creates short-term difficulties for retail and hospitality sectors.
"Tourists from China account for roughly 25 percent of Japan's inbound traffic, making department stores, luxury retail, and hospitality particularly at risk."
GDP Decline Breakdown
Japanese GDP fell by 0.4% in the third quarter, as industrial exports were impacted by tariffs imposed by the United States recently.
Exports were a primary driver of the decline, falling by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a the same period last year.
Previously, the American government had threatened Japan with a new 25 percent tariff on its goods, which was later lowered to 15% when the two countries concluded a trade deal.
Consumer spending also declined, by 0.3% quarter-on-quarter.
On an annual basis, Japan's GDP shrank by 1.8 percent in the quarter through September.
"The Japanese economic situation was solid in the first half of this year and today's GDP data showed that growth is paused temporarily.
I anticipate Japan's economy to be returning on a moderate recovery trend going forward."
The White House has lately acknowledged the effect of tariffs on Americans, lowering duties on imported food products including meat, tomatoes, coffee and bananas amid growing concerns about rising costs.
Economic Agenda
- 8am GMT: Switzerland GDP report for Q3
- 3pm GMT: US construction spending data for August
