The Japanese Economic Output Declines while Overseas Sales Suffer by US Tariffs

The Japanese economic system has experienced a drop for the first time in six quarters, mainly caused by declining overseas shipments because of recent US tariffs.

G7 Economic Standings

The Japanese economy stands as the first G7 country to report an economic contraction in the previous three-month period.

With the US still needing to release its GDP data for the third quarter, the present G7 economic leaderboard show:

• France: +0.5% expansion
• UK: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• German economy: 0%
• Italian economy: no growth
• Japanese economy: -0.4%

Tourism Shares Decline amid Political Rift with Beijing

Alongside the economic contraction, Japan is facing an growing political conflict with China concerning Taiwan.

Stocks in Japanese travel and retail businesses have dropped sharply after China urged its residents to avoid visiting to Japan.

This decision by Beijing escalated a political dispute that was initiated by statements from Japan's recently appointed PM about the potential of sending forces in the case of a potential Chinese invasion on Taiwan.

The situation led to a wave of selling across Japanese leisure shares.

• The Tokyo Disneyland operator shares fell by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3 percent
• The national carrier fell by 3.75 percent

"The China-Japan dispute over Taiwan and Beijing's travel warning advising against travel to Japan creates near-term challenges for consumer-facing sectors.

"Tourists from China account for roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and tourism services especially at risk."

Economic Contraction Details

Japan's gross domestic product fell by 0.4 percent in the third quarter, as industrial exports were affected by tariffs levied by the United States recently.

Overseas shipments were a primary factor of the contraction, falling by 1.2 percent 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 percent when the two nations reached 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 shrank by 1.8 percent in the three months through September.

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

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

The US administration has recently recognized the effect of tariffs on US consumers, lowering duties on imported food products including meat, produce, coffee and bananas amid growing concerns about rising costs.

Economic Agenda

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