The Japanese Economy Declines as Exports Are Hit by US Trade Duties

Japan's economy has shown a decline for the first time in six quarters, primarily caused by declining exports as a result of newly imposed American trade duties.

Group of Seven Economic Standings

The Japanese economy stands as the first Group of Seven nation to report an economic contraction in the most recent three-month period.

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

• The French economy: 0.5 percent quarterly growth
• UK: +0.1%
• Canada: 0.1 percent (preliminary figure)
• Germany: 0%
• Italy: no growth
• Japanese economy: -0.4%

Tourism Shares Slump amid Diplomatic Dispute with Beijing

In addition to the economic contraction, Japan is facing an intensifying political tension with China concerning Taiwan.

Stocks in Japanese tourism and retail firms have fallen sharply after China recommended its citizens to refrain from traveling to Japan.

This move by Chinese authorities heightened a diplomatic feud that was triggered by comments from Japan's new prime minister about the possibility of sending forces in the event of a hypothetical Chinese attack on Taiwan.

The development triggered a wave of selling across Japanese leisure stocks.

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

"The China-Japan dispute over Taiwan and Beijing's advisory advising against visits to Japan introduces near-term difficulties for consumer-facing sectors.

"Chinese visitors represent roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and hospitality especially vulnerable."

Economic Decline Breakdown

Japanese gross domestic product declined by 0.4 percent in the third quarter, as manufacturers' overseas shipments were hit by tariffs levied by the US recently.

Exports were a primary driver of the decline, falling by 1.2% compared with the previous quarter, and were 4.5% lower than a year ago.

Previously, the American government had threatened Japan with a new 25% tariff on its products, which was later lowered to 15 percent when the two countries reached a trade deal.

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

On an annualized basis, Japan's GDP contracted by 1.8 percent in the three months through September.

"Japan's economy was stable in the initial six months of this year and the latest GDP figures showed that growth is paused temporarily.

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

The US administration has lately recognized the effect of tariffs on US consumers, reducing duties on food imports including beef, produce, coffee and fruits amid growing concerns about increasing costs.

Business Calendar

• 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August