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Japan's economy has shown a decline for the first time in a year and a half, primarily caused by falling exports due to recent American tariffs.

Group of Seven Growth Rankings

The Japanese economy stands as the initial Group of Seven country to disclose an economic contraction in the latest quarter.

With the US still needing to publish its GDP data for the third quarter, the present Group of Seven economic leaderboard indicate:

• The French economy: 0.5 percent expansion
• United Kingdom: +0.1%
• Canada: +0.1% (preliminary figure)
• German economy: zero growth
• Italian economy: 0%
• Japanese economy: negative 0.4 percent

Travel Shares Decline during Political Rift with Beijing

Alongside the economic contraction, Japan is dealing with an intensifying diplomatic conflict with China regarding Taiwan.

Shares in Japan's tourism and consumer businesses have declined significantly after China advised its residents to refrain from traveling to Japan.

This move by Chinese authorities intensified a diplomatic feud that was triggered by statements from Japan's recently appointed prime minister about the potential of deploying forces in the case of a potential Chinese attack on Taiwan.

The situation triggered a surge of sell-offs across Japan's tourism-related shares.

• The Tokyo Disneyland operator shares dropped by 5.7%
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier fell by 3.75 percent

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

"Chinese visitors represent roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and hospitality particularly at risk."

Economic Contraction Breakdown

Japanese GDP fell by 0.4 percent in the third quarter, as manufacturers' exports were impacted by tariffs levied by the United States this year.

Exports were a major driver of the contraction, falling by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a year ago.

Earlier this year, the American government had threatened Japan with a additional 25% tariff on its goods, which was later lowered to 15% when the two countries concluded a trade deal.

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

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

"Japan's economy was stable in the initial six months of this year and today's GDP data showed that momentum is halted for now.

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

The US administration has recently recognized the impact of tariffs on Americans, reducing tariffs on imported food products including beef, produce, coffee and bananas amid increasing concerns about increasing costs.

Business Calendar

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