The Japanese Economy Shrinks as Exports Suffer by US Tariffs

Japan's economy has shown a decline for the first time in six quarters, largely caused by falling exports due to recent US trade duties.

Group of Seven Growth Rankings

The Japanese economy stands as the initial Group of Seven country to announce an economic contraction in the previous three-month period.

With the United States still needing to publish its GDP data for the third quarter, the current G7 growth standings display:

• The French economy: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canada: 0.1 percent (preliminary figure)
• German economy: zero growth
• Italian economy: no growth
• Japan: -0.4%

Travel Shares Decline during Diplomatic Dispute with China

Alongside the economic contraction, Japan is experiencing an escalating political conflict with China concerning Taiwan.

Stocks in Japan's travel and consumer firms have dropped sharply after China urged its nationals to refrain from visiting to Japan.

This action by Beijing heightened a political dispute that was triggered by comments from Tokyo's recently appointed prime minister about the possibility of deploying forces in the case of a potential Chinese invasion on Taiwan.

The situation triggered a surge of sell-offs across Japan's leisure shares.

• The Tokyo Disneyland operator stock dropped by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier fell by 3.75%

"The China-Japan dispute over Taiwan and China's advisory discouraging travel to Japan creates near-term headwinds for retail and hospitality sectors.

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

Economic Decline Breakdown

Japanese GDP declined by 0.4% in the third quarter, as industrial overseas shipments were impacted by tariffs levied by the US recently.

Exports were a primary driver of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5% lower than a year ago.

Previously, the US administration had threatened Japan with a additional 25% tariff on its goods, which was later reduced to 15 percent when the two nations reached a trade deal.

Consumer spending also declined, by 0.3% quarter-on-quarter.

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

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

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

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

Economic Calendar

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