The Japanese Economy Shrinks while Exports Face Impact by US Trade Duties

Japan's economy has experienced a decline for the first time in six quarters, primarily driven by falling overseas shipments due to recent American trade duties.

Group of Seven Economic Rankings

The Japanese economy stands as the initial G7 country to announce an output shrinkage in the previous three-month period.

As the United States yet to release its GDP data for the third quarter, the present Group of Seven growth standings display:

• The French economy: 0.5 percent expansion
• UK: 0.1 percent
• Canada: +0.1% (preliminary figure)
• German economy: zero growth
• Italian economy: no growth
• Japan: -0.4%

Tourism Stocks Slump during Diplomatic Dispute with Beijing

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

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

This action by Chinese authorities intensified a political dispute that was initiated by statements from Japan's recently appointed PM about the potential of deploying forces in the case of a potential Chinese attack on Taiwan.

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

• The Tokyo Disneyland operator shares fell by 5.7 percent
• The department store chain plummeted by 11.3%
• Japan Airlines fell by 3.75%

"The ongoing dispute over Taiwan and Beijing's travel warning discouraging travel to Japan introduces short-term challenges for retail and hospitality sectors.

"Chinese visitors account for roughly 25% of Japan's international visitors, making retail outlets, luxury retail, and tourism services especially at risk."

Economic Decline Details

Japan's GDP declined by 0.4% in the third quarter, as industrial overseas shipments were hit by duties imposed by the United States recently.

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

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

Consumer spending also declined, by 0.3 percent compared to the previous quarter.

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

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

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

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

Business Calendar

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