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The Japanese economic system has shown a decline for the first time in a year and a half, largely caused by declining exports due to newly imposed US tariffs.

G7 Economic Standings

Japan has become the first Group of Seven country to announce an economic contraction in the latest quarter.

As the US still needing to publish its gross domestic product data for the third quarter, the current Group of Seven growth leaderboard show:

• France: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canada: 0.1 percent (preliminary figure)
• Germany: zero growth
• Italy: no growth
• Japan: -0.4%

Tourism Shares Decline during Political Rift with Beijing

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

Shares in Japanese tourism and retail firms have dropped noticeably after China recommended its citizens to avoid traveling to Japan.

This action by Chinese authorities intensified a diplomatic feud that was initiated by statements from Tokyo's new PM about the possibility of deploying forces in the event of a hypothetical Chinese attack on Taiwan.

The situation triggered a surge of sell-offs across Japanese leisure stocks.

• The Tokyo Disneyland operator shares fell by 5.7 percent
• The department store chain plummeted by 11.3 percent
• Japan Airlines declined by 3.75%

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

"Chinese visitors represent roughly 25% of Japan's international visitors, making retail outlets, luxury retail, and hospitality particularly at risk."

Economic Decline Breakdown

Japan's gross domestic product dropped by 0.4% in the third quarter, as industrial exports were affected by tariffs levied by the United States recently.

Overseas shipments were a key driver of the contraction, falling 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 threatened Japan with a new 25% tariff on its goods, which was later reduced to 15% when the two countries reached a trade agreement.

Consumer spending 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.

"The Japanese economic situation was strong in the first half of this year and the latest GDP data showed that momentum is paused for now.

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

The US administration has recently recognized the impact of tariffs on US consumers, reducing tariffs on imported food products including beef, tomatoes, beverages and bananas amid increasing concerns about rising costs.

Business Agenda

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