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Japan's economy has shown a drop for the first time in a year and a half, primarily driven by declining exports because of newly imposed American tariffs.

G7 Economic Leaderboard

The Japanese economy has become the first G7 nation to announce an output shrinkage in the latest three-month period.

With the United States still needing to release its gross domestic product figures for Q3 2025, the current G7 growth standings show:

• France: 0.5 percent quarterly growth
• United Kingdom: +0.1%
• Canada: +0.1% (preliminary figure)
• German economy: 0%
• Italian economy: no growth
• Japanese economy: -0.4%

Tourism Shares Slump amid Political Rift with China

Alongside the GDP decline, Japan is dealing with an growing political conflict with China concerning Taiwan.

Shares in Japanese travel and consumer companies have declined significantly after China advised its residents to avoid visiting to Japan.

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

The situation caused a surge of selling across Japanese tourism-related shares.

• The Tokyo Disneyland operator stock dropped by 5.7 percent
• The department store chain tumbled by 11.3 percent
• Japan Airlines declined by 3.75%

"The China-Japan tension over Taiwan and Beijing's travel warning advising against travel to Japan introduces short-term difficulties for consumer-facing sectors.

"Tourists from China represent roughly 25 percent of Japan's international visitors, making retail outlets, high-end shopping, and tourism services especially at risk."

Economic Contraction Breakdown

Japanese GDP fell by 0.4% in the July-September quarter, as manufacturers' exports were affected by duties imposed by the US this year.

Exports were a key driver of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.

Previously, the US administration had proposed Japan with a new 25 percent tariff on its products, which was later lowered to 15 percent when the two nations reached a trade agreement.

Private demand also declined, by 0.3% compared to the previous quarter.

On an annual basis, Japan's real gross domestic product contracted by 1.8 percent in the three months through September.

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

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

The White House has recently recognized the impact of tariffs on Americans, lowering tariffs on imported food products including meat, tomatoes, coffee and fruits amid growing concerns about rising costs.

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