The Japanese Economy Contracts as Exports Face Impact by American Tariffs

Japan's economy has shown a decline for the initial time in six quarters, primarily driven by declining overseas shipments due to recent American tariffs.

G7 Economic Rankings

Japan has become the initial G7 country to report an GDP decline in the latest three-month period.

As the United States yet to publish its gross domestic product figures for the third quarter, the current Group of Seven economic rankings indicate:

• France: +0.5% expansion
• UK: +0.1%
• Canadian economy: +0.1% (provisional estimate)
• Germany: zero growth
• Italy: 0%
• Japan: -0.4%

Tourism Stocks Slump during Political Rift with Beijing

Alongside the economic contraction, Japan is facing an growing political tension with China regarding Taiwan.

Stocks in Japan's travel and retail businesses have dropped noticeably after China urged its residents to refrain from traveling to Japan.

This move by Beijing heightened a political dispute that was triggered by comments from Tokyo's recently appointed prime minister about the potential of deploying forces in the event of a hypothetical Chinese invasion on Taiwan.

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

• Oriental Land stock fell by 5.7 percent
• The department store chain plummeted by 11.3 percent
• The national carrier declined by 3.75%

"The ongoing dispute over Taiwan and China's travel warning discouraging visits to Japan brings near-term difficulties for consumer-facing sectors.

"Chinese visitors account for roughly 25% of Japan's inbound traffic, making retail outlets, high-end shopping, and tourism services particularly vulnerable."

GDP Contraction Breakdown

Japanese GDP dropped by 0.4% in the third quarter, as manufacturers' overseas shipments were affected by duties imposed by the United States recently.

Exports were a major driver of the contraction, falling by 1.2 percent compared with the previous 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 new 25% tariff on its products, which was later reduced to 15% when the two countries reached a trade deal.

Private demand also fell, by 0.3 percent quarter-on-quarter.

On an annualized basis, Japan's real gross domestic product shrank by 1.8% in the quarter through September.

"Japan's economy was strong in the initial six months of this year and the latest 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 tariffs on food imports including meat, produce, coffee and bananas amid increasing concerns about rising costs.

Economic Agenda

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