Japan's Economic Output Shrinks while Exports Face Impact by US Trade Duties

Japan's economy has experienced a decline for the initial time in a year and a half, primarily driven by weakening exports due to newly imposed American tariffs.

Group of Seven Economic Standings

Japan stands as the first G7 economy to announce an output shrinkage in the latest quarter.

As the United States still needing to publish its gross domestic product figures for the third quarter, the current Group of Seven economic rankings indicate:

• The French economy: 0.5 percent quarterly growth
• UK: +0.1%
• Canada: +0.1% (provisional estimate)
• Germany: 0%
• Italy: no growth
• Japanese economy: negative 0.4 percent

Tourism Stocks Slump during Diplomatic Dispute with Beijing

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

Stocks in Japanese tourism and consumer firms have declined noticeably after China urged its residents to avoid traveling to Japan.

This move by Chinese authorities heightened a political dispute that was triggered by statements from Tokyo's recently appointed prime minister about the potential of sending forces in the event of a potential Chinese attack on Taiwan.

The development triggered a surge of sell-offs across Japan's tourism-related stocks.

• Oriental Land stock dropped by 5.7%
• The department store chain plummeted by 11.3 percent
• The national carrier declined by 3.75%

"The China-Japan tension over Taiwan and Beijing's travel warning discouraging travel to Japan introduces near-term challenges for consumer-facing sectors.

"Tourists from China account for roughly 25% of Japan's inbound traffic, making department stores, luxury retail, and hospitality especially at risk."

Economic Contraction Details

Japan's GDP declined by 0.4 percent in the July-September quarter, as manufacturers' exports were hit by tariffs levied by the US recently.

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

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

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

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

"The Japanese economic situation was strong in the initial six months of this year and the latest GDP data showed that growth is paused for now.

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

The White House has recently acknowledged the impact of tariffs on Americans, reducing duties on food imports including beef, tomatoes, beverages and fruits amid growing concerns about rising costs.

Business Calendar

• 8am GMT: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August