🔗 Share this article

Japan's economy has experienced a contraction for the initial time in a year and a half, mainly caused by declining overseas shipments due to recent US trade duties.

Group of Seven Growth Rankings

The Japanese economy has become the first G7 nation to report an economic contraction in the previous quarter.

As the United States still needing to release its gross domestic product data for the third quarter, the present Group of Seven economic leaderboard show:

• France: 0.5 percent expansion
• UK: 0.1 percent
• Canada: 0.1 percent (preliminary figure)
• Germany: zero growth
• Italian economy: 0%
• Japan: -0.4%

Tourism Stocks Slump amid Political Rift with Beijing

In addition to the economic contraction, Japan is dealing with an growing diplomatic dispute with China regarding Taiwan.

Stocks in Japanese travel and retail businesses have declined significantly after China recommended its nationals to avoid traveling to Japan.

This action by Chinese authorities escalated a political dispute that was sparked by comments from Tokyo's new PM about the possibility of deploying troops in the case of a potential Chinese invasion on Taiwan.

The situation triggered a surge of selling across Japan's tourism-related stocks.

• Oriental Land stock fell by 5.7 percent
• The department store chain tumbled by 11.3 percent
• Japan Airlines fell by 3.75 percent

"The ongoing dispute over Taiwan and China's travel warning advising against visits to Japan introduces short-term headwinds for consumer-facing sectors.

"Tourists from China account for roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and hospitality especially vulnerable."

Economic Contraction Details

Japanese gross domestic product declined by 0.4 percent in the third quarter, as manufacturers' overseas shipments were hit by duties levied by the United States this year.

Exports were a major factor of the contraction, dropping by 1.2% compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

Earlier this year, the American government had threatened Japan with a additional 25 percent tariff on its products, which was later reduced to 15% when the two countries concluded a trade agreement.

Private demand also declined, by 0.3 percent compared to the previous quarter.

On an annual basis, Japan's GDP shrank by 1.8% in the three months through September.

"The Japanese economic situation was stable in the first half of this year and today's GDP figures showed that growth is halted for now.

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

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

Business Calendar

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