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The Japanese economic system has recorded a decline for the first time in a year and a half, mainly caused by weakening overseas shipments due to newly imposed American tariffs.

Group of Seven Economic Standings

The Japanese economy stands as the first G7 nation to report an output shrinkage in the most recent quarter.

As the United States yet to publish its gross domestic product data for the third quarter, the current G7 economic standings display:

• The French economy: 0.5 percent expansion
• UK: +0.1%
• Canada: 0.1 percent (provisional estimate)
• German economy: zero growth
• Italian economy: 0%
• Japan: negative 0.4 percent

Travel Stocks Decline during Diplomatic Dispute with China

In addition to the economic contraction, Japan is experiencing an escalating diplomatic conflict with China concerning Taiwan.

Stocks in Japan's tourism and consumer firms have dropped noticeably after China recommended its nationals to refrain from visiting to Japan.

This decision by Chinese authorities escalated a diplomatic feud that was sparked by statements from Japan's new prime minister about the possibility of sending troops in the event of a potential Chinese attack on Taiwan.

The situation caused a surge of sell-offs across Japanese tourism-related stocks.

• Oriental Land shares dropped by 5.7%
• The department store chain plummeted by 11.3 percent
• Japan Airlines fell by 3.75 percent

"The China-Japan tension over Taiwan and China's advisory discouraging travel to Japan creates near-term challenges for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and hospitality particularly at risk."

GDP Contraction Breakdown

Japan's gross domestic product dropped by 0.4 percent in the third quarter, as industrial exports were impacted by tariffs imposed by the United States recently.

Overseas shipments were a major driver of the contraction, falling by 1.2 percent compared with the April-June quarter, and were 4.5% lower than a year ago.

Previously, the American government had threatened Japan with a new 25 percent tariff on its goods, which was later reduced to 15 percent when the two nations concluded a trade deal.

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

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

"The Japanese economic situation was solid in the first half of this year and today's GDP data showed that momentum is paused for now.

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

The US administration has recently recognized the impact of tariffs on US consumers, reducing duties on imported food products including meat, tomatoes, beverages and fruits amid growing concerns about increasing costs.

Economic Calendar

• 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August