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The Japanese economic system has recorded a decline for the first time in a year and a half, primarily caused by falling overseas shipments because of recent US tariffs.

G7 Growth Rankings

The Japanese economy stands as the initial G7 country to announce an economic contraction in the latest three-month period.

As the US still needing to publish its GDP figures for the third quarter, the present G7 economic leaderboard indicate:

• France: 0.5 percent expansion
• UK: +0.1%
• Canada: +0.1% (preliminary figure)
• German economy: 0%
• Italy: no growth
• Japan: -0.4%

Tourism Shares Slump during Diplomatic Dispute with Beijing

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

Shares in Japan's tourism and consumer businesses have dropped significantly after China urged its residents to avoid traveling to Japan.

This action by Beijing intensified a political dispute that was sparked by comments from Tokyo's new prime minister about the possibility of sending forces in the case of a potential Chinese attack on Taiwan.

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

• The Tokyo Disneyland operator shares dropped by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3%
• Japan Airlines fell by 3.75 percent

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

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making retail outlets, high-end shopping, and tourism services especially at risk."

Economic Contraction Breakdown

Japan's GDP fell by 0.4% in the July-September quarter, as industrial exports were hit by duties levied by the United States this year.

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

Earlier this year, the US administration had proposed Japan with a additional 25% tariff on its goods, which was later reduced to 15 percent when the two nations reached a trade agreement.

Consumer spending also fell, by 0.3 percent compared to the previous quarter.

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

"Japan's economy was solid in the initial six months of this year and the latest GDP figures showed that momentum is paused temporarily.

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

The US administration has lately recognized the effect of tariffs on US consumers, reducing duties on imported food products including beef, produce, beverages and fruits amid growing concerns about rising costs.

Business Calendar

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