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Japan's economy has recorded a drop for the initial time in a year and a half, mainly caused by weakening overseas shipments due to recent American tariffs.

G7 Growth Standings

The Japanese economy stands as the initial G7 nation to announce an output shrinkage in the latest quarter.

As the US still needing to release its GDP data for the third quarter, the current Group of Seven economic rankings display:

• The French economy: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canada: +0.1% (preliminary figure)
• Germany: zero growth
• Italian economy: 0%
• Japanese economy: negative 0.4 percent

Travel Shares Decline during Political Dispute with China

In addition to the economic contraction, Japan is facing an growing diplomatic tension with China concerning Taiwan.

Stocks in Japanese tourism and retail firms have dropped sharply after China urged its citizens to avoid traveling to Japan.

This action by Chinese authorities heightened a political dispute that was triggered by comments from Tokyo's new PM about the possibility of sending forces in the case of a potential Chinese attack on Taiwan.

The development caused a surge of selling across Japan's leisure stocks.

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

"The ongoing tension over Taiwan and Beijing's advisory discouraging visits to Japan introduces short-term challenges for retail and hospitality sectors.

"Chinese visitors represent roughly 25% of Japan's international visitors, making department stores, high-end shopping, and tourism services particularly at risk."

Economic Decline Details

Japan's GDP fell by 0.4% in the third quarter, as manufacturers' exports were affected by duties imposed by the US this year.

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

Earlier this year, the American government had threatened Japan with a new 25 percent tariff on its goods, which was later lowered to 15 percent when the two nations concluded a trade agreement.

Private demand also fell, by 0.3 percent quarter-on-quarter.

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

"The Japanese economic situation was strong in the initial six months of this year and today's GDP data showed that growth is paused temporarily.

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

The US administration has recently acknowledged the impact of tariffs on Americans, reducing duties on imported food products including beef, produce, beverages and bananas amid increasing concerns about increasing costs.

Economic Agenda

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