The Japanese Economic Output Shrinks while Exports Are Hit by US Tariffs

Japan's economy has experienced a drop for the first time in six quarters, mainly driven by declining overseas shipments because of newly imposed American tariffs.

Group of Seven Growth Rankings

Japan stands as the first G7 country to report an GDP decline in the previous three-month period.

With the United States yet to release its GDP data for the third quarter, the current G7 growth leaderboard show:

• The French economy: +0.5% expansion
• UK: 0.1 percent
• Canadian economy: +0.1% (preliminary figure)
• Germany: zero growth
• Italy: 0%
• Japan: -0.4%

Tourism Stocks Decline amid Political Rift with China

In addition to the GDP decline, Japan is facing an growing diplomatic conflict with China regarding Taiwan.

Stocks in Japanese travel and consumer businesses have declined significantly after China urged its nationals to refrain from visiting to Japan.

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

The situation caused a wave of sell-offs across Japan's tourism-related stocks.

• Oriental Land shares fell by 5.7%
• The department store chain tumbled by 11.3%
• Japan Airlines fell by 3.75%

"The ongoing dispute over Taiwan and Beijing's advisory advising against travel to Japan creates short-term challenges for consumer-facing sectors.

"Chinese visitors account for roughly 25% of Japan's international visitors, making retail outlets, luxury retail, and tourism services particularly at risk."

GDP Decline Details

Japan's GDP dropped by 0.4 percent in the third quarter, as industrial overseas shipments were impacted by duties imposed by the United States this year.

Overseas shipments were a major factor of the decline, falling by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.

Previously, the US administration had threatened Japan with a new 25 percent tariff on its goods, which was later lowered to 15% when the two nations concluded a trade deal.

Consumer spending also fell, 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 strong in the initial six months of this year and today's GDP figures showed that momentum is halted temporarily.

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

The White House has recently recognized the effect of tariffs on Americans, lowering duties on imported food products including beef, tomatoes, beverages and bananas amid growing concerns about increasing costs.

Economic Agenda

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