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The Japanese economic system has recorded a drop for the first time in six quarters, primarily driven by weakening exports due to newly imposed American tariffs.

Group of Seven Growth Standings

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

With the United States yet to release its gross domestic product figures for the third quarter, the present G7 growth standings show:

• The French economy: +0.5% expansion
• United Kingdom: 0.1 percent
• Canada: +0.1% (provisional estimate)
• German economy: 0%
• Italy: no growth
• Japan: -0.4%

Travel Stocks Slump amid Diplomatic Dispute with China

Alongside the economic contraction, Japan is facing an intensifying political conflict with China regarding Taiwan.

Stocks in Japan's travel and consumer businesses have fallen noticeably after China recommended its citizens to avoid visiting to Japan.

This action by Beijing escalated a political dispute that was initiated by comments from Japan's recently appointed prime minister about the possibility of deploying forces in the event of a hypothetical Chinese invasion on Taiwan.

The development caused a wave of sell-offs across Japan's leisure shares.

• Oriental Land shares dropped by 5.7%
• Isetan Mitsukoshi tumbled by 11.3%
• Japan Airlines fell by 3.75%

"The China-Japan dispute over Taiwan and China's advisory advising against travel to Japan brings near-term headwinds for consumer-facing sectors.

"Tourists from China account for roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and hospitality particularly at risk."

Economic Decline Details

Japan's GDP dropped by 0.4 percent in the third quarter, as industrial overseas shipments were impacted by duties levied by the US recently.

Exports were a major driver of the contraction, falling by 1.2 percent 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 percent when the two countries concluded a trade agreement.

Consumer spending also declined, by 0.3% compared to the previous quarter.

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

"Japan's economy was stable in the first half of this year and the latest GDP figures showed that growth is paused temporarily.

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

The White House has recently recognized the effect of tariffs on US consumers, reducing tariffs on food imports including meat, produce, beverages and bananas amid increasing concerns about rising costs.

Economic Agenda

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