Japan's Economic Output Shrinks as Overseas Sales Suffer by US Trade Duties

Japan's economy has shown a decline for the first time in a year and a half, primarily driven by declining overseas shipments because of newly imposed US tariffs.

G7 Growth Rankings

Japan has become the initial G7 nation to disclose an output shrinkage in the latest quarter.

With the United States yet to publish its gross domestic product figures for Q3 2025, the current G7 economic leaderboard display:

• The French economy: +0.5% expansion
• United Kingdom: 0.1 percent
• Canadian economy: 0.1 percent (provisional estimate)
• German economy: zero growth
• Italian economy: no growth
• Japanese economy: -0.4%

Tourism Stocks Decline amid Diplomatic Rift with China

Alongside the GDP decline, Japan is dealing with an escalating political tension with China regarding Taiwan.

Shares in Japanese tourism and retail companies have declined sharply after China advised its residents to refrain from visiting to Japan.

This action by Beijing intensified a political dispute that was triggered by statements from Tokyo's recently appointed PM about the possibility of sending troops in the case of a hypothetical Chinese attack on Taiwan.

The development led to a wave of sell-offs across Japan's tourism-related stocks.

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

"The China-Japan dispute over Taiwan and Beijing's advisory advising against travel to Japan introduces near-term challenges for retail and hospitality sectors.

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making retail outlets, high-end shopping, and hospitality especially vulnerable."

Economic Contraction Details

Japanese GDP dropped by 0.4% in the July-September quarter, as industrial overseas shipments were hit by tariffs levied by the United States this year.

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

Earlier this year, the US administration had proposed Japan with a new 25% tariff on its goods, which was later reduced to 15% when the two nations reached a trade deal.

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

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

"Japan's economy was strong in the first half of this year and today's GDP data showed that momentum is halted for now.

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

The White House has lately acknowledged the impact of tariffs on Americans, reducing duties on food imports including meat, tomatoes, coffee and bananas amid growing concerns about rising costs.

Business Calendar

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