Japan's Economic Output Shrinks as Exports Suffer by American Trade Duties

Japan's economy has experienced a drop for the initial time in six quarters, primarily driven by declining overseas shipments as a result of newly imposed American tariffs.

Group of Seven Growth Leaderboard

Japan stands as the initial Group of Seven country to report an output shrinkage in the previous quarter.

With the US yet to release its gross domestic product figures for the third quarter, the current Group of Seven growth rankings indicate:

• The French economy: +0.5% expansion
• United Kingdom: +0.1%
• Canada: +0.1% (provisional estimate)
• Germany: zero growth
• Italy: no growth
• Japanese economy: negative 0.4 percent

Tourism Shares Decline during Diplomatic Dispute with Beijing

Alongside the GDP decline, Japan is dealing with an growing political tension with China concerning Taiwan.

Shares in Japanese travel and consumer businesses have dropped significantly after China urged its residents to refrain from visiting to Japan.

This move by Beijing heightened a diplomatic feud that was initiated by comments from Japan's new prime minister about the possibility of deploying forces in the event of a potential Chinese invasion on Taiwan.

The situation led to a surge of selling across Japanese leisure stocks.

• The Tokyo Disneyland operator stock fell by 5.7 percent
• The department store chain plummeted by 11.3%
• The national carrier fell by 3.75%

"The ongoing dispute over Taiwan and China's travel warning discouraging travel to Japan creates short-term challenges for consumer-facing sectors.

"Chinese visitors account for roughly 25% of Japan's inbound traffic, making department stores, luxury retail, and tourism services particularly at risk."

Economic Contraction Breakdown

Japanese gross domestic product fell by 0.4% in the July-September quarter, as industrial exports were impacted by tariffs levied by the US this year.

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

Earlier this year, the US administration had threatened Japan with a additional 25 percent tariff on its products, which was later lowered to 15% when the two nations concluded a trade agreement.

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

On an annual basis, Japan's GDP contracted by 1.8% in the quarter through September.

"Japan's economy was solid in the initial six months of this year and today's GDP data showed that growth is paused temporarily.

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

The White House has lately recognized the impact of tariffs on Americans, reducing duties on imported food products including beef, tomatoes, coffee and fruits amid growing concerns about rising costs.

Economic Agenda

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