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Japan's economy has recorded a contraction for the first time in six quarters, largely caused by falling exports due to newly imposed US tariffs.

G7 Growth Rankings

Japan stands as the first Group of Seven country to disclose an economic contraction in the latest three-month period.

As the United States yet to publish its GDP data for the third quarter, the present Group of Seven economic rankings display:

• France: 0.5 percent quarterly growth
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (provisional estimate)
• German economy: zero growth
• Italian economy: no growth
• Japan: -0.4%

Tourism Shares Decline amid Diplomatic Rift with Beijing

Alongside the GDP decline, Japan is facing an escalating diplomatic tension with China concerning Taiwan.

Stocks in Japanese travel and retail companies have declined noticeably after China advised its residents to avoid visiting to Japan.

This move by Chinese authorities heightened a political dispute that was sparked by statements from Tokyo's recently appointed PM about the potential of sending forces in the case of a hypothetical Chinese invasion on Taiwan.

The situation led to a surge of selling across Japanese tourism-related shares.

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

"The China-Japan tension over Taiwan and Beijing's travel warning advising against travel to Japan creates near-term difficulties for retail and hospitality sectors.

"Chinese visitors account for roughly 25 percent of Japan's inbound traffic, making retail outlets, high-end shopping, and tourism services particularly at risk."

GDP Decline Breakdown

Japan's GDP fell by 0.4% in the third quarter, as industrial overseas shipments were hit by tariffs imposed by the United States recently.

Overseas shipments were a key factor of the contraction, falling by 1.2% compared with the April-June quarter, and were 4.5% lower than a year ago.

Previously, the US administration had threatened Japan with a additional 25% tariff on its products, which was later lowered to 15% when the two countries reached a trade agreement.

Consumer spending 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 stable in the first half of this year and the latest GDP data showed that momentum is halted for now.

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

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

Business Agenda

• 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August