Japan's Economic Output Shrinks as Overseas Sales Face Impact by US Tariffs
Japan's economy has recorded a decline for the first time in a year and a half, mainly driven by weakening exports as a result of recent US tariffs.
G7 Economic Leaderboard
The Japanese economy stands as the first Group of Seven economy to disclose an GDP decline in the most recent quarter.
With the US still needing to publish its gross domestic product figures for Q3 2025, the present G7 economic leaderboard display:
- France: +0.5% quarterly growth
- United Kingdom: 0.1 percent
- Canada: 0.1 percent (provisional estimate)
- Germany: 0%
- Italy: no growth
- Japan: -0.4%
Travel Shares Decline during Political Dispute with Beijing
Alongside the GDP decline, Japan is dealing with an growing diplomatic dispute with China regarding Taiwan.
Shares in Japan's travel and consumer companies have dropped noticeably after China advised its residents to refrain from traveling to Japan.
This move by Beijing escalated a diplomatic feud that was initiated by comments from Tokyo's recently appointed prime minister about the possibility of sending troops in the event of a hypothetical Chinese attack on Taiwan.
The situation caused a surge of selling across Japanese tourism-related shares.
- The Tokyo Disneyland operator stock dropped by 5.7 percent
- Isetan Mitsukoshi tumbled by 11.3 percent
- The national carrier fell by 3.75%
"The China-Japan tension over Taiwan and Beijing's travel warning advising against visits to Japan introduces near-term difficulties for consumer-facing sectors.
"Tourists from China account for roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services especially vulnerable."
Economic Decline Details
Japan's gross domestic product dropped by 0.4% in the third quarter, as manufacturers' overseas shipments were hit by duties levied by the United States this year.
Overseas shipments were a major driver of the contraction, falling by 1.2 percent compared with the previous quarter, and were 4.5% lower than a the same period last year.
Earlier this year, the US administration had proposed Japan with a additional 25% tariff on its goods, which was later lowered to 15 percent when the two countries reached a trade agreement.
Private demand also fell, by 0.3 percent quarter-on-quarter.
On an annualized basis, Japan's GDP shrank by 1.8 percent 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 momentum is paused temporarily.
I anticipate Japan's economy to be back on a gradual growth trend going forward."
The US administration has lately recognized the impact of tariffs on US consumers, reducing tariffs on imported food products including meat, tomatoes, beverages and fruits amid growing concerns about rising costs.
Economic Calendar
- 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
