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The Japanese economic system has experienced a drop for the first time in six quarters, mainly driven by weakening overseas shipments as a result of recent American tariffs.

G7 Growth Standings

Japan stands as the first G7 economy to announce an output shrinkage in the latest three-month period.

As the United States still needing to release its GDP figures for the third quarter, the present G7 growth standings indicate:

• The French economy: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canada: +0.1% (provisional estimate)
• German economy: zero growth
• Italian economy: 0%
• Japanese economy: negative 0.4 percent

Travel Stocks Slump during Political Rift with Beijing

In addition to the GDP decline, Japan is dealing with an escalating political dispute with China concerning Taiwan.

Shares in Japanese tourism and retail businesses have dropped noticeably after China advised its residents to avoid visiting to Japan.

This move by Beijing intensified a diplomatic feud that was initiated by comments from Japan's new prime minister about the potential of deploying forces in the case of a potential Chinese invasion on Taiwan.

The situation led to a surge of sell-offs across Japan's leisure shares.

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

"The China-Japan dispute over Taiwan and Beijing's advisory advising against travel to Japan brings near-term headwinds for retail and hospitality sectors.

"Tourists from China account for roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and hospitality especially vulnerable."

Economic Contraction Breakdown

Japan's GDP fell by 0.4% in the third quarter, as industrial exports were impacted by tariffs imposed by the US recently.

Overseas shipments were a key factor of the decline, falling by 1.2% compared with the April-June quarter, and were 4.5% lower than a year ago.

Earlier this year, the American government had threatened Japan with a new 25 percent tariff on its goods, which was later reduced to 15% when the two countries concluded a trade deal.

Private demand also declined, by 0.3% quarter-on-quarter.

On an annualized 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 data showed that growth is paused temporarily.

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

The US administration has recently acknowledged the impact of tariffs on US consumers, reducing duties on imported food products including meat, produce, beverages and fruits amid increasing concerns about increasing costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August