Japan's Economy Contracts while Exports Face Impact by American Tariffs

The Japanese economic system has experienced a decline for the first time in a year and a half, largely driven by declining exports because of newly imposed US trade duties.

Group of Seven Growth Leaderboard

Japan stands as the initial G7 economy to disclose an economic contraction in the latest three-month period.

With the United States still needing to publish its gross domestic product figures for the third quarter, the current G7 growth leaderboard display:

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

Tourism Stocks Slump during Diplomatic Rift with Beijing

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

Shares in Japan's tourism and retail companies have fallen noticeably after China recommended its nationals to avoid visiting to Japan.

This decision by Chinese authorities intensified a diplomatic feud that was sparked by statements from Japan's new PM about the potential of deploying troops in the event of a potential Chinese invasion on Taiwan.

The situation caused a surge of selling across Japanese leisure stocks.

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

"The ongoing dispute over Taiwan and China's advisory advising against travel to Japan creates short-term difficulties for retail and hospitality sectors.

"Tourists from China account for roughly 25% of Japan's inbound traffic, making retail outlets, high-end shopping, and tourism services particularly at risk."

Economic Decline Details

Japanese GDP declined by 0.4 percent in the third quarter, as manufacturers' exports were impacted by duties imposed by the US recently.

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

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

Consumer spending also fell, by 0.3 percent 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 strong in the first half 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 lately acknowledged the impact of tariffs on US consumers, lowering duties on imported food products including meat, produce, coffee and fruits 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