Japan's Economic Output Declines as Overseas Sales Are Hit by US Trade Duties

The Japanese economic system has shown a drop for the first time in six quarters, primarily caused by falling exports due to newly imposed US tariffs.

Group of Seven Economic Leaderboard

The Japanese economy has become the first Group of Seven economy to report an output shrinkage in the most recent quarter.

As the United States still needing to publish its GDP data for Q3 2025, the present G7 economic rankings display:

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

Tourism Shares Decline during Political Dispute with China

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

Stocks in Japan's travel and retail firms have dropped noticeably after China urged its nationals to refrain from visiting to Japan.

This decision by Beijing intensified a political dispute that was sparked by comments from Tokyo's new prime minister about the potential of sending troops in the case of a hypothetical Chinese attack on Taiwan.

The situation triggered a wave of sell-offs across Japan's leisure shares.

• Oriental Land shares fell by 5.7%
• Isetan Mitsukoshi tumbled by 11.3%
• Japan Airlines declined by 3.75%

"The ongoing tension over Taiwan and Beijing's advisory advising against travel to Japan introduces near-term headwinds for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and tourism services especially at risk."

GDP Contraction Details

Japan's gross domestic product declined by 0.4 percent 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 contraction, dropping by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

Previously, the US administration had threatened Japan with a additional 25 percent tariff on its products, which was later lowered to 15 percent when the two countries reached a trade agreement.

Private demand also fell, by 0.3% 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 strong in the first half of this year and the latest GDP data showed that growth is halted temporarily.

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

The US administration has lately acknowledged the impact of tariffs on Americans, lowering duties on food imports including meat, produce, beverages and bananas amid increasing concerns about increasing costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August