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The Japanese economic system has experienced a drop for the initial time in a year and a half, mainly caused by weakening overseas shipments due to newly imposed US tariffs.

Group of Seven Growth Rankings

Japan has become the initial G7 nation to disclose an output shrinkage in the previous quarter.

With the United States yet to publish its GDP data for the third quarter, the present G7 growth leaderboard show:

• The French economy: +0.5% expansion
• UK: +0.1%
• Canadian economy: 0.1 percent (provisional estimate)
• German economy: zero growth
• Italy: no growth
• Japan: -0.4%

Tourism Shares Decline during Diplomatic Rift with China

In addition to the economic contraction, Japan is dealing with an escalating diplomatic conflict with China regarding Taiwan.

Stocks in Japan's tourism and consumer firms have fallen sharply after China advised its citizens to avoid visiting to Japan.

This decision by Chinese authorities escalated a political dispute that was sparked by remarks from Japan's recently appointed prime minister about the potential of sending troops in the case of a hypothetical Chinese attack on Taiwan.

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

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

"The ongoing tension over Taiwan and Beijing's travel warning advising against visits to Japan brings near-term difficulties for consumer-facing sectors.

"Chinese visitors represent roughly 25% of Japan's international visitors, making department stores, high-end shopping, and hospitality especially vulnerable."

Economic Contraction Details

Japanese GDP declined by 0.4 percent in the third quarter, as industrial exports were affected by tariffs levied by the US recently.

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

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

Private demand also fell, by 0.3 percent quarter-on-quarter.

On an annual basis, Japan's GDP shrank by 1.8 percent in the three months through September.

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

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

The US administration has lately recognized the effect of tariffs on Americans, reducing tariffs on food imports including meat, produce, coffee and fruits amid increasing concerns about increasing costs.

Economic Agenda

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