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The Japanese economic system has recorded a drop for the first time in a year and a half, primarily caused by declining overseas shipments as a result of newly imposed US tariffs.

G7 Growth Leaderboard

Japan stands as the initial G7 country to report an GDP decline in the latest quarter.

With the United States still needing to release its gross domestic product figures for Q3 2025, the current Group of Seven growth leaderboard show:

• The French economy: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canada: +0.1% (preliminary figure)
• Germany: zero growth
• Italy: no growth
• Japan: negative 0.4 percent

Travel Shares Decline during Diplomatic Rift with Beijing

Alongside the GDP decline, Japan is facing an intensifying diplomatic conflict with China concerning Taiwan.

Stocks in Japan's travel and retail firms have declined significantly after China advised its residents to refrain from traveling to Japan.

This move by Beijing intensified a diplomatic feud that was initiated by remarks from Tokyo's new PM about the possibility of sending forces in the event of a hypothetical Chinese attack on Taiwan.

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

• The Tokyo Disneyland operator stock fell by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier declined by 3.75 percent

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

"Chinese visitors represent roughly 25% of Japan's international visitors, making department stores, high-end shopping, and hospitality particularly at risk."

Economic Decline Details

Japanese gross domestic product declined by 0.4 percent in the third quarter, as industrial exports were impacted by tariffs levied by the US this year.

Overseas shipments were a key factor of the decline, falling by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a year ago.

Previously, the US administration had threatened Japan with a new 25 percent tariff on its products, which was later reduced to 15% when the two nations concluded a trade deal.

Private demand also fell, by 0.3 percent compared to the previous quarter.

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

"The Japanese economic situation was solid in the initial six months of this year and the latest GDP data showed that growth is paused temporarily.

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

The White House has recently acknowledged the impact of tariffs on Americans, lowering tariffs on food imports including meat, produce, coffee and fruits amid increasing concerns about rising costs.

Business Agenda

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