Japan's Economy Contracts while Overseas Sales Suffer by American Tariffs

The Japanese economic system has shown a contraction for the initial time in a year and a half, primarily driven by declining exports due to recent US trade duties.

Group of Seven Growth Rankings

Japan stands as the first Group of Seven nation to disclose an GDP decline in the previous three-month period.

As the US still needing to publish its gross domestic product data for the third quarter, the current Group of Seven economic standings display:

• France: +0.5% expansion
• United Kingdom: 0.1 percent
• Canada: +0.1% (provisional estimate)
• German economy: 0%
• Italian economy: 0%
• Japan: -0.4%

Travel Shares Decline amid Political Rift with China

In addition to the GDP decline, Japan is experiencing an escalating political tension with China concerning Taiwan.

Shares in Japan's tourism and consumer companies have declined sharply after China recommended its nationals to avoid visiting to Japan.

This action by Beijing heightened a diplomatic feud that was triggered by remarks from Tokyo's new prime minister about the possibility of sending forces in the event of a potential Chinese invasion on Taiwan.

The situation caused a wave of selling across Japanese leisure stocks.

• The Tokyo Disneyland operator stock fell by 5.7%
• Isetan Mitsukoshi plummeted by 11.3 percent
• Japan Airlines fell by 3.75 percent

"The ongoing tension 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 percent of Japan's international visitors, making retail outlets, luxury retail, and tourism services especially vulnerable."

Economic Contraction Breakdown

Japanese gross domestic product dropped by 0.4% in the July-September quarter, as industrial exports were affected by tariffs levied by the United States this year.

Overseas shipments were a key factor of the decline, dropping 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 proposed Japan with a new 25% tariff on its goods, which was later reduced to 15% when the two countries reached a trade agreement.

Private demand also declined, by 0.3 percent quarter-on-quarter.

On an annual basis, Japan's real gross domestic product contracted by 1.8% in the quarter through September.

"Japan's economy was stable in the initial six months of this year and the latest GDP data showed that growth is paused for now.

I anticipate Japan's economy to be returning on a gradual recovery trend going forward."

The US administration has recently acknowledged the effect of tariffs on Americans, reducing tariffs on imported food products including meat, tomatoes, coffee and fruits amid growing concerns about increasing costs.

Economic Agenda

• 8am GMT: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August