The Japanese Economy Contracts while Exports Suffer by US Trade Duties

The Japanese economic system has shown a decline for the first time in a year and a half, mainly driven by declining overseas shipments because of newly imposed US tariffs.

G7 Economic Standings

The Japanese economy stands as the initial Group of Seven country to report an GDP decline in the previous three-month period.

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

• The French economy: 0.5 percent quarterly growth
• UK: 0.1 percent
• Canada: 0.1 percent (preliminary figure)
• German economy: 0%
• Italy: 0%
• Japanese economy: negative 0.4 percent

Tourism Shares Slump amid Political Dispute with Beijing

Alongside the GDP decline, Japan is facing an intensifying political tension with China regarding Taiwan.

Shares in Japan's travel and retail businesses have fallen significantly after China recommended its nationals to avoid visiting to Japan.

This decision by Chinese authorities intensified a political dispute that was triggered by remarks from Japan's new PM about the potential of sending forces in the case of a potential Chinese invasion on Taiwan.

The development led to a wave of sell-offs across Japanese leisure shares.

• Oriental Land stock fell by 5.7%
• The department store chain tumbled by 11.3%
• The national carrier fell by 3.75 percent

"The China-Japan tension over Taiwan and Beijing's travel warning advising against visits to Japan introduces short-term challenges for retail and hospitality sectors.

"Chinese visitors account for roughly 25% of Japan's international visitors, making department stores, luxury retail, and hospitality particularly at risk."

Economic Contraction Details

Japan's gross domestic product declined by 0.4 percent in the third quarter, as industrial exports were affected by tariffs levied by the US this year.

Overseas shipments were a key driver of the contraction, dropping by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

Previously, the American government had threatened Japan with a additional 25% tariff on its goods, which was later lowered to 15% when the two nations concluded a trade deal.

Private demand also fell, by 0.3% compared to the previous quarter.

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

"Japan's economy was strong in the first half of this year and the latest GDP data showed that growth is paused for now.

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

The White House has lately acknowledged the effect of tariffs on Americans, lowering tariffs on food imports including beef, tomatoes, beverages and bananas amid increasing concerns about rising costs.

Business Agenda

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