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Japan's economy has shown a decline for the initial time in six quarters, primarily driven by falling exports as a result of newly imposed US tariffs.

G7 Growth Standings

The Japanese economy has become the first Group of Seven nation to announce an GDP decline in the latest quarter.

With the United States yet to publish its gross domestic product data for the third quarter, the current G7 growth rankings indicate:

• France: +0.5% expansion
• UK: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• Germany: 0%
• Italy: 0%
• Japanese economy: negative 0.4 percent

Tourism Stocks Decline during Political Dispute with China

Alongside the GDP decline, Japan is dealing with an growing diplomatic tension with China concerning Taiwan.

Shares in Japan's tourism and consumer businesses have fallen significantly after China recommended its nationals to avoid traveling to Japan.

This move by Chinese authorities intensified a diplomatic feud that was sparked by remarks from Tokyo's recently appointed PM about the possibility of sending forces in the case of a hypothetical Chinese attack on Taiwan.

The development led to a wave of selling across Japanese leisure shares.

• Oriental Land shares dropped by 5.7%
• The department store chain tumbled by 11.3 percent
• The national carrier declined by 3.75%

"The ongoing tension over Taiwan and Beijing's advisory discouraging travel to Japan introduces short-term difficulties for consumer-facing sectors.

"Tourists from China account for roughly 25% of Japan's inbound traffic, making retail outlets, high-end shopping, and tourism services particularly at risk."

Economic Decline Details

Japan's gross domestic product dropped by 0.4% in the July-September quarter, as manufacturers' overseas shipments were impacted by duties levied by the US this year.

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

Previously, the US administration had proposed Japan with a additional 25 percent tariff on its goods, which was later lowered to 15% when the two countries concluded a trade agreement.

Consumer spending 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 quarter through September.

"The Japanese economic situation was strong in the first half of this year and today's GDP data showed that momentum is halted temporarily.

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

The US administration has lately recognized the effect of tariffs on US consumers, reducing tariffs on imported food products including beef, tomatoes, coffee and fruits amid increasing concerns about increasing costs.

Economic Calendar

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August