Japan's Economy Shrinks as Exports Suffer by US Tariffs

Japan's economy has shown a decline for the first time in six quarters, largely driven by weakening exports as a result of newly imposed US tariffs.

Group of Seven Growth Standings

Japan stands as the first Group of Seven country to disclose an GDP decline in the latest three-month period.

As the US yet to release its GDP data for the third quarter, the present G7 economic leaderboard indicate:

• The French economy: 0.5 percent expansion
• United Kingdom: 0.1 percent
• Canada: +0.1% (preliminary figure)
• German economy: 0%
• Italian economy: no growth
• Japan: negative 0.4 percent

Tourism Stocks Slump during Diplomatic Rift with China

Alongside the economic contraction, Japan is experiencing an intensifying political dispute with China concerning Taiwan.

Stocks in Japanese tourism and retail businesses have fallen sharply after China advised its nationals to avoid visiting to Japan.

This action by Chinese authorities heightened a diplomatic feud that was sparked by statements from Tokyo's recently appointed PM about the potential of deploying forces in the case of a potential Chinese invasion on Taiwan.

The development triggered a surge of sell-offs across Japanese tourism-related shares.

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

"The China-Japan dispute over Taiwan and Beijing's advisory discouraging travel to Japan brings short-term headwinds for consumer-facing sectors.

"Tourists from China represent roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and hospitality especially vulnerable."

GDP Decline Details

Japan's gross domestic product fell by 0.4 percent in the July-September quarter, as manufacturers' exports were affected by tariffs imposed by the US recently.

Overseas shipments were a primary factor of the decline, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

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 deal.

Consumer spending also declined, by 0.3% quarter-on-quarter.

On an annual basis, Japan's GDP shrank by 1.8 percent in the quarter through September.

"The Japanese economic situation was strong in the initial six months of this year and the latest GDP data showed that growth is paused for now.

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

The US administration has lately recognized the effect of tariffs on Americans, lowering tariffs on food imports including beef, produce, beverages and fruits amid growing concerns about rising costs.

Business Agenda

• 8am GMT: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August