The Japanese Economy Declines while Overseas Sales Suffer by American Tariffs
Japan's economy has shown a drop for the first time in six quarters, largely driven by declining overseas shipments because of recent American tariffs.
Group of Seven Growth Leaderboard
Japan stands as the first G7 economy to disclose an GDP decline in the previous quarter.
As the US still needing to release its gross domestic product data for Q3 2025, the present Group of Seven growth leaderboard show:
- The French economy: +0.5% quarterly growth
- United Kingdom: +0.1%
- Canadian economy: 0.1 percent (preliminary figure)
- Germany: 0%
- Italian economy: no growth
- Japan: -0.4%
Tourism Stocks Decline amid Diplomatic Rift with Beijing
Alongside the GDP decline, Japan is dealing with an intensifying diplomatic tension with China regarding Taiwan.
Shares in Japanese tourism and consumer companies have fallen significantly after China advised its nationals to refrain from traveling to Japan.
This decision by Beijing intensified a political dispute that was triggered by remarks from Tokyo's new prime minister about the potential of deploying troops in the case of a hypothetical Chinese invasion on Taiwan.
The situation triggered a surge of sell-offs across Japan's tourism-related stocks.
- Oriental Land stock fell by 5.7 percent
- Isetan Mitsukoshi plummeted by 11.3%
- The national carrier declined by 3.75%
"The ongoing tension over Taiwan and China's travel warning discouraging travel to Japan brings short-term challenges for retail and hospitality sectors.
"Chinese visitors account for roughly 25 percent of Japan's international visitors, making department stores, luxury retail, and tourism services especially at risk."
GDP Decline Breakdown
Japan's gross domestic product dropped by 0.4 percent in the third quarter, as industrial overseas shipments were affected by duties imposed by the United States this year.
Overseas shipments were a primary driver 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.
Earlier this year, the American government had threatened Japan with a additional 25 percent tariff on its products, which was later lowered to 15% when the two nations reached a trade deal.
Private demand also declined, by 0.3% quarter-on-quarter.
On an annual basis, Japan's GDP shrank by 1.8% in the quarter through September.
"Japan's economy was solid in the initial six months of this year and today's GDP data showed that momentum is paused for now.
I expect Japan's economy to be back on a gradual recovery trend going forward."
The US administration has lately acknowledged the impact of tariffs on US consumers, reducing tariffs on food imports including beef, tomatoes, coffee and bananas amid growing concerns about rising costs.
Business Calendar
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 3pm GMT: US construction spending data for August
