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Japan's economy has recorded a drop for the first time in a year and a half, largely driven by weakening exports as a result of recent American tariffs.

Group of Seven Economic Leaderboard

The Japanese economy has become the first G7 nation to report an output shrinkage in the latest quarter.

With the United States still needing to release its GDP figures for Q3 2025, the current Group of Seven economic rankings show:

• France: +0.5% quarterly growth
• UK: +0.1%
• Canada: 0.1 percent (provisional estimate)
• German economy: 0%
• Italian economy: no growth
• Japan: negative 0.4 percent

Travel Shares Slump during Political Dispute with Beijing

In addition to the economic contraction, Japan is experiencing an growing political tension with China regarding Taiwan.

Shares in Japanese tourism and retail firms have dropped noticeably after China advised its citizens to refrain from visiting to Japan.

This decision by Chinese authorities heightened a diplomatic feud that was sparked by comments from Japan's recently appointed prime minister about the potential of deploying troops in the case of a hypothetical Chinese invasion on Taiwan.

The situation led to a wave of selling across Japan's leisure stocks.

• The Tokyo Disneyland operator shares dropped by 5.7%
• Isetan Mitsukoshi tumbled by 11.3%
• The national carrier declined by 3.75 percent

"The China-Japan dispute over Taiwan and China's travel warning discouraging visits to Japan introduces near-term headwinds for retail and hospitality sectors.

"Chinese visitors represent roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services particularly vulnerable."

Economic Decline Details

Japanese gross domestic product declined by 0.4% in the third quarter, as industrial overseas shipments were hit by tariffs imposed by the US recently.

Exports were a primary factor of the decline, dropping by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a year ago.

Earlier this year, 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 nations 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 percent in the quarter through September.

"Japan's economy was stable 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 returning on a gradual growth trend going forward."

The White House has lately acknowledged the impact of tariffs on Americans, lowering duties on food imports including meat, tomatoes, beverages and bananas amid growing concerns about increasing costs.

Economic Calendar

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