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Japan's economy has shown a decline for the first time in six quarters, primarily caused by declining overseas shipments because of recent American tariffs.

G7 Growth Standings

Japan stands as the first G7 country to report an GDP decline in the most recent quarter.

With the United States yet to release its gross domestic product figures for Q3 2025, the current Group of Seven growth rankings display:

• The French economy: 0.5 percent quarterly growth
• UK: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• German economy: 0%
• Italy: 0%
• Japanese economy: -0.4%

Tourism Shares Slump amid Diplomatic Rift with China

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

Shares in Japan's travel and retail firms have dropped noticeably after China urged its residents to refrain from visiting to Japan.

This action by Chinese authorities heightened a diplomatic feud that was triggered by remarks from Japan's new prime minister about the potential of deploying forces in the case of a potential Chinese attack on Taiwan.

The situation led to a surge of sell-offs across Japanese leisure shares.

• Oriental Land shares dropped by 5.7 percent
• The department store chain tumbled by 11.3 percent
• The national carrier declined by 3.75%

"The China-Japan dispute over Taiwan and Beijing's advisory advising against visits to Japan creates near-term challenges for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and hospitality particularly vulnerable."

Economic Decline Breakdown

Japan's GDP declined by 0.4% in the July-September quarter, as industrial overseas shipments were impacted by tariffs levied by the United States this year.

Overseas shipments were a primary factor of the contraction, dropping by 1.2% compared with the previous quarter, and were 4.5% lower than a the same period last year.

Earlier this year, the American government had threatened Japan with a additional 25 percent tariff on its goods, which was later lowered to 15 percent when the two countries reached a trade agreement.

Consumer spending also fell, by 0.3% quarter-on-quarter.

On an annual basis, Japan's GDP shrank by 1.8% in the quarter through September.

"Japan's economy was solid in the initial six months of this year and today's GDP figures showed that growth is halted for now.

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

The White House has recently recognized the effect of tariffs on US consumers, lowering duties on food imports including meat, tomatoes, beverages and fruits amid growing concerns about rising costs.

Economic Calendar

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