Japan's Economy Declines as Overseas Sales Face Impact by US Tariffs

The Japanese economic system has experienced a decline for the first time in six quarters, primarily driven by falling overseas shipments as a result of recent American tariffs.

G7 Economic Rankings

The Japanese economy has become the initial G7 nation to report an GDP decline in the most recent quarter.

As the United States yet to publish its GDP figures for the third quarter, the current G7 growth leaderboard display:

• France: +0.5% expansion
• UK: +0.1%
• Canadian economy: +0.1% (preliminary figure)
• German economy: zero growth
• Italy: 0%
• Japanese economy: -0.4%

Tourism Shares Decline during Political Dispute with China

In addition to the GDP decline, Japan is dealing with an escalating political conflict with China regarding Taiwan.

Stocks in Japanese tourism and retail firms have fallen noticeably after China urged its residents to avoid visiting to Japan.

This decision by Beijing heightened a political dispute that was initiated by comments from Tokyo's recently appointed PM about the potential of sending troops in the event of a potential Chinese invasion on Taiwan.

The development caused a surge of sell-offs across Japan's leisure shares.

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

"The ongoing dispute over Taiwan and China's travel warning discouraging visits to Japan brings near-term headwinds for consumer-facing sectors.

"Tourists from China account for roughly 25% of Japan's international visitors, making department stores, high-end shopping, and tourism services especially vulnerable."

Economic Decline Details

Japan's GDP dropped by 0.4 percent in the third quarter, as industrial exports were impacted by tariffs imposed by the US recently.

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

Previously, the US administration had threatened Japan with a new 25 percent tariff on its goods, which was later lowered to 15 percent when the two countries reached a trade agreement.

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

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

"Japan's economy was stable in the first half of this year and the latest GDP figures showed that momentum is halted for now.

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

The US administration has lately recognized the impact of tariffs on US consumers, reducing duties on food imports including beef, tomatoes, beverages and bananas amid growing concerns about increasing costs.

Business Agenda

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