🔗 Share this article

The Japanese economic system has shown a drop for the first time in a year and a half, largely driven by weakening exports due to recent American trade duties.

Group of Seven Economic Rankings

The Japanese economy stands as the initial Group of Seven country to report an output shrinkage in the previous three-month period.

With the United States still needing to publish its gross domestic product figures for the third quarter, the current Group of Seven economic rankings indicate:

• The French economy: +0.5% expansion
• UK: +0.1%
• Canada: +0.1% (preliminary figure)
• German economy: 0%
• Italian economy: 0%
• Japan: -0.4%

Tourism Shares Slump amid Diplomatic Dispute with Beijing

Alongside the economic contraction, Japan is experiencing an intensifying diplomatic dispute with China concerning Taiwan.

Stocks in Japan's tourism and retail companies have fallen noticeably after China advised its residents to refrain from visiting to Japan.

This action by Chinese authorities intensified a political dispute that was triggered by comments from Japan's recently appointed prime minister about the possibility of deploying forces in the event of a hypothetical Chinese invasion on Taiwan.

The situation triggered a wave of selling across Japan's leisure shares.

• Oriental Land shares fell by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3 percent
• Japan Airlines fell by 3.75 percent

"The ongoing dispute over Taiwan and China's travel warning advising against visits to Japan creates short-term headwinds for retail and hospitality sectors.

"Chinese visitors represent roughly 25% of Japan's international visitors, making department stores, luxury retail, and hospitality especially vulnerable."

GDP Contraction Breakdown

Japan's GDP fell by 0.4 percent in the third quarter, as industrial exports were hit by tariffs imposed by the United States recently.

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

Previously, the American government had proposed Japan with a additional 25% tariff on its products, which was later reduced to 15% when the two nations concluded a trade agreement.

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

On an annualized basis, Japan's real gross domestic product shrank by 1.8 percent in the quarter through September.

"The Japanese economic situation was strong in the initial six months of this year and today's GDP data showed that momentum is paused temporarily.

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

The US administration has lately recognized the effect of tariffs on Americans, reducing tariffs on imported food products including beef, tomatoes, coffee and fruits amid increasing concerns about increasing costs.

Business Agenda

• 8am GMT: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August