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

Group of Seven Economic Rankings

The Japanese economy stands as the initial G7 country to disclose an GDP decline in the previous quarter.

As the United States still needing to publish its gross domestic product figures for the third quarter, the present G7 economic leaderboard indicate:

• The French economy: 0.5 percent expansion
• UK: 0.1 percent
• Canada: +0.1% (provisional estimate)
• Germany: 0%
• Italy: 0%
• Japan: negative 0.4 percent

Travel Shares Decline amid Diplomatic Dispute with China

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

Stocks in Japanese tourism and consumer businesses have declined noticeably after China advised its citizens to avoid traveling to Japan.

This action by Beijing heightened a diplomatic feud that was sparked by statements from Japan's new prime minister about the possibility of deploying forces in the case of a hypothetical Chinese invasion on Taiwan.

The development triggered a surge of selling across Japanese leisure stocks.

• Oriental Land stock dropped by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3 percent
• The national carrier declined by 3.75 percent

"The China-Japan tension over Taiwan and China's travel warning advising against travel to Japan creates short-term headwinds for retail and hospitality sectors.

"Chinese visitors account for roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and hospitality particularly vulnerable."

GDP Contraction Details

Japan's gross domestic product declined by 0.4 percent in the July-September quarter, as industrial exports were affected by duties levied by the United States this year.

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

Previously, the US administration had proposed Japan with a new 25% tariff on its products, which was later lowered to 15 percent when the two nations concluded a trade agreement.

Private demand 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 three months through September.

"The Japanese economic situation was solid in the first half of this year and today's GDP figures showed that growth is paused for now.

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

The White House has lately recognized the effect of tariffs on US consumers, lowering duties on food imports including beef, produce, coffee and bananas amid increasing concerns about rising costs.

Economic Calendar

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