Japan's Economic Output Declines while Overseas Sales Suffer by American Tariffs

The Japanese economic system has shown a contraction for the initial time in a year and a half, largely caused by falling overseas shipments as a result of newly imposed US tariffs.

G7 Economic Rankings

The Japanese economy stands as the initial Group of Seven nation to report an economic contraction in the previous three-month period.

With the United States still needing to release its GDP data for the third quarter, the current G7 growth leaderboard indicate:

• The French economy: 0.5 percent expansion
• United Kingdom: +0.1%
• Canada: +0.1% (preliminary figure)
• Germany: 0%
• Italy: 0%
• Japan: -0.4%

Tourism Stocks Slump during Political Dispute with Beijing

Alongside the economic contraction, Japan is dealing with an escalating diplomatic dispute with China regarding Taiwan.

Stocks in Japanese tourism and retail businesses have declined significantly after China urged its nationals to avoid visiting to Japan.

This move by Beijing escalated a political dispute that was triggered by remarks from Tokyo's recently appointed PM about the potential of sending troops in the event of a potential Chinese attack on Taiwan.

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

• Oriental Land shares fell by 5.7%
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier fell by 3.75%

"The China-Japan tension over Taiwan and Beijing's travel warning advising against travel to Japan creates short-term difficulties for consumer-facing sectors.

"Chinese visitors account for roughly 25% of Japan's inbound traffic, making retail outlets, high-end shopping, and tourism services especially vulnerable."

Economic Decline Details

Japan's gross domestic product declined by 0.4 percent in the July-September quarter, as industrial overseas shipments were affected by duties imposed by the US this year.

Overseas shipments were a primary factor of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5% lower than a year ago.

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

Private demand also declined, by 0.3% compared to the previous quarter.

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

"The Japanese economic situation was stable in the initial six months of this year and today's GDP data showed that growth is halted for now.

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

The US administration has recently acknowledged the impact of tariffs on Americans, reducing duties on food imports including beef, produce, coffee and bananas amid increasing concerns about rising costs.

Economic Agenda

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