The Japanese Economic Output Shrinks as Exports Suffer by US Trade Duties
Japan's economy has shown a contraction for the first time in a year and a half, primarily caused by falling exports due to newly imposed US trade duties.
G7 Economic Leaderboard
Japan stands as the first Group of Seven country to disclose an GDP decline in the previous quarter.
As the US still needing to publish its GDP figures for Q3 2025, the current Group of Seven growth standings indicate:
- France: +0.5% expansion
- United Kingdom: 0.1 percent
- Canadian economy: 0.1 percent (provisional estimate)
- Germany: zero growth
- Italy: 0%
- Japanese economy: negative 0.4 percent
Travel Shares Slump amid Diplomatic Rift with Beijing
Alongside the GDP decline, Japan is facing an escalating political dispute with China regarding Taiwan.
Stocks in Japan's travel and consumer companies have declined noticeably after China recommended its nationals to refrain from traveling to Japan.
This decision by Chinese authorities heightened a diplomatic feud that was sparked by comments from Tokyo's recently appointed prime minister about the potential of deploying forces in the case of a hypothetical Chinese invasion on Taiwan.
The situation triggered a wave of sell-offs across Japan's leisure stocks.
- The Tokyo Disneyland operator stock fell by 5.7%
- Isetan Mitsukoshi plummeted by 11.3%
- The national carrier declined by 3.75 percent
"The ongoing tension over Taiwan and Beijing's travel warning discouraging visits to Japan introduces short-term challenges for retail and hospitality sectors.
"Tourists from China represent roughly 25 percent of Japan's international visitors, making department stores, luxury retail, and hospitality especially vulnerable."
Economic Decline Details
Japan's gross domestic product declined by 0.4 percent in the July-September quarter, as industrial overseas shipments were impacted by tariffs imposed by the US recently.
Exports were a primary driver of the contraction, falling by 1.2% compared with the April-June quarter, and were 4.5% lower than a year ago.
Previously, the American government had threatened Japan with a additional 25 percent tariff on its goods, which was later reduced to 15% when the two countries concluded a trade deal.
Private demand also fell, by 0.3 percent quarter-on-quarter.
On an annual basis, Japan's real gross domestic product shrank by 1.8% in the three months 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 expect Japan's economy to be returning on a moderate recovery trend going forward."
The US administration has recently recognized the effect of tariffs on Americans, lowering tariffs on imported food products including meat, produce, coffee and bananas amid growing concerns about increasing costs.
Economic Calendar
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
