The Japanese Economic Output Shrinks as Exports Are Hit by American Tariffs

Japan's economy has experienced a decline for the first time in a year and a half, largely driven by weakening exports due to recent American tariffs.

G7 Growth Standings

Japan has become the first G7 country to disclose an GDP decline in the previous three-month period.

As the United States still needing to release its gross domestic product data for the third quarter, the present Group of Seven growth leaderboard indicate:

• The French economy: 0.5 percent expansion
• United Kingdom: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• German economy: zero growth
• Italian economy: no growth
• Japanese economy: negative 0.4 percent

Travel Shares Slump amid Diplomatic Dispute with Beijing

In addition to the GDP decline, Japan is experiencing an intensifying political conflict with China concerning Taiwan.

Stocks in Japanese tourism and consumer firms have fallen significantly after China urged its citizens to refrain from visiting to Japan.

This decision by Chinese authorities intensified a political dispute that was initiated by remarks from Tokyo's recently appointed prime minister about the possibility of deploying troops in the event of a hypothetical Chinese attack on Taiwan.

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

• The Tokyo Disneyland operator shares fell by 5.7 percent
• The department store chain tumbled by 11.3%
• The national carrier declined by 3.75 percent

"The China-Japan dispute over Taiwan and China's advisory discouraging travel to Japan brings near-term difficulties for consumer-facing sectors.

"Tourists from China account for roughly 25% of Japan's international visitors, making retail outlets, luxury retail, and hospitality particularly at risk."

GDP Decline Details

Japan's GDP fell by 0.4% in the third quarter, as manufacturers' overseas shipments were impacted by duties imposed by the US this year.

Exports were a primary driver of the decline, dropping by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a year ago.

Previously, the US administration had threatened Japan with a new 25 percent tariff on its goods, which was later reduced to 15 percent when the two nations reached a trade deal.

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

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

"The Japanese economic situation was stable in the first half of this year and the latest GDP data showed that growth is paused temporarily.

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

The White House has recently acknowledged the impact of tariffs on Americans, lowering tariffs on imported food products including meat, tomatoes, beverages and bananas amid growing concerns about increasing costs.

Business Agenda

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