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Japan's economy has experienced a contraction for the initial time in six quarters, largely driven by declining exports as a result of newly imposed American tariffs.

Group of Seven Growth Rankings

The Japanese economy stands as the first G7 country to disclose an output shrinkage in the latest three-month period.

As the United States still needing to release its gross domestic product figures for the third quarter, the present G7 economic rankings display:

• France: 0.5 percent quarterly growth
• UK: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• Germany: zero growth
• Italy: no growth
• Japanese economy: negative 0.4 percent

Travel Stocks Decline during Diplomatic Rift with Beijing

Alongside the economic contraction, Japan is experiencing an escalating diplomatic tension with China concerning Taiwan.

Stocks in Japanese travel and consumer businesses have dropped sharply after China recommended its nationals to refrain from traveling to Japan.

This decision by Beijing intensified a diplomatic feud that was triggered by comments from Japan's recently appointed PM about the potential of sending troops in the case of a potential Chinese invasion on Taiwan.

The situation caused a surge of selling across Japan's tourism-related stocks.

• Oriental Land stock fell by 5.7%
• Isetan Mitsukoshi tumbled by 11.3%
• The national carrier fell by 3.75%

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

"Tourists from China represent roughly 25% of Japan's inbound traffic, making department stores, high-end shopping, and tourism services particularly at risk."

GDP Contraction Details

Japan's gross domestic product declined by 0.4% in the third quarter, as manufacturers' exports were impacted by duties levied by the US recently.

Exports were a primary driver of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.

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

Consumer spending also declined, by 0.3 percent compared to the previous quarter.

On an annual 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 today's GDP figures 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 acknowledged the impact of tariffs on Americans, lowering duties on food imports including beef, tomatoes, beverages and fruits amid growing concerns about rising costs.

Business Calendar

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