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The Japanese economic system has experienced a drop for the initial time in six quarters, largely caused by declining exports due to newly imposed US trade duties.

G7 Economic Rankings

Japan has become the first Group of Seven economy to announce an output shrinkage in the most recent three-month period.

With the US still needing to publish its GDP data for the third quarter, the current G7 growth standings indicate:

• France: +0.5% quarterly growth
• UK: 0.1 percent
• Canada: +0.1% (preliminary figure)
• Germany: zero growth
• Italian economy: no growth
• Japan: negative 0.4 percent

Tourism Stocks Decline amid Diplomatic Rift with China

In addition to the GDP decline, Japan is dealing with an intensifying diplomatic conflict with China concerning Taiwan.

Shares in Japanese tourism and consumer businesses have dropped noticeably after China urged its nationals to avoid traveling to Japan.

This action by Chinese authorities intensified a diplomatic feud that was triggered by comments from Tokyo's recently appointed prime minister about the possibility of deploying troops in the case of a hypothetical Chinese invasion on Taiwan.

The situation triggered a wave of selling across Japan's tourism-related shares.

• Oriental Land shares dropped by 5.7%
• Isetan Mitsukoshi plummeted by 11.3%
• Japan Airlines declined by 3.75 percent

"The China-Japan dispute over Taiwan and Beijing's travel warning discouraging travel to Japan creates short-term challenges for consumer-facing sectors.

"Tourists from China account for roughly 25% of Japan's international visitors, making retail outlets, luxury retail, and tourism services particularly vulnerable."

GDP Contraction Details

Japanese gross domestic product dropped by 0.4% in the third quarter, as industrial overseas shipments were affected by duties imposed by the US recently.

Exports were a primary factor of the decline, dropping by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a year ago.

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

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

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

"Japan's economy was strong in the initial six months of this year and the latest GDP figures showed that growth is halted for now.

I anticipate 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 food imports including meat, produce, beverages and bananas amid increasing concerns about rising costs.

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