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The Japanese economic system has shown a contraction for the first time in a year and a half, largely driven by declining exports as a result of recent US tariffs.

Group of Seven Growth Leaderboard

Japan has become the initial G7 economy to announce an economic contraction in the previous quarter.

As the US yet to publish its gross domestic product figures for the third quarter, the present G7 economic standings indicate:

• The French economy: 0.5 percent expansion
• United Kingdom: +0.1%
• Canadian economy: +0.1% (preliminary figure)
• German economy: 0%
• Italian economy: 0%
• Japanese economy: -0.4%

Travel Shares Decline during Diplomatic Rift with Beijing

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

Shares in Japan's travel and consumer companies have fallen significantly after China advised its nationals to avoid visiting to Japan.

This action by Chinese authorities escalated a political dispute that was initiated by comments from Japan's new prime minister about the potential of sending troops in the case of a hypothetical Chinese attack on Taiwan.

The situation led to a wave of sell-offs across Japan's leisure shares.

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

"The China-Japan tension over Taiwan and China's advisory discouraging visits to Japan brings near-term headwinds for consumer-facing sectors.

"Chinese visitors account for roughly 25 percent of Japan's international visitors, making retail outlets, high-end shopping, and tourism services particularly at risk."

GDP Contraction Breakdown

Japan's gross domestic product declined by 0.4 percent in the July-September quarter, as industrial overseas shipments were affected by duties imposed by the US recently.

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

Earlier this year, the American government had threatened Japan with a new 25 percent tariff on its products, which was later reduced to 15 percent when the two countries reached a trade agreement.

Consumer spending also fell, by 0.3% quarter-on-quarter.

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

"The Japanese economic situation was solid in the first half of this year and the latest GDP figures showed that momentum is halted temporarily.

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

The White House has lately recognized the effect of tariffs on Americans, lowering duties on food imports including beef, tomatoes, beverages and bananas amid growing concerns about rising costs.

Business Agenda

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