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The Japanese economic system has experienced a decline for the initial time in a year and a half, mainly caused by declining overseas shipments as a result of recent American tariffs.

Group of Seven Economic Leaderboard

Japan has become the first Group of Seven nation to announce an economic contraction in the previous quarter.

With the US still needing to publish its GDP data for the third quarter, the current Group of Seven economic leaderboard display:

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

Travel Shares Slump amid Diplomatic Rift with China

In addition to the GDP decline, Japan is experiencing an intensifying diplomatic conflict with China regarding Taiwan.

Stocks in Japanese tourism and consumer companies have fallen noticeably after China advised its nationals to refrain from visiting to Japan.

This action by Beijing heightened a political dispute that was initiated by statements from Japan's new PM about the potential of sending forces in the event of a potential Chinese invasion on Taiwan.

The situation caused a wave of selling across Japanese leisure stocks.

• Oriental Land shares fell by 5.7%
• Isetan Mitsukoshi plummeted by 11.3%
• Japan Airlines declined by 3.75%

"The ongoing tension over Taiwan and Beijing's travel warning discouraging travel to Japan creates near-term headwinds for consumer-facing sectors.

"Chinese visitors account for roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and tourism services especially vulnerable."

GDP Decline Breakdown

Japan's GDP dropped by 0.4% in the third quarter, as industrial overseas shipments were affected by tariffs levied by the US this year.

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.

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

Private demand also fell, by 0.3% compared to the previous quarter.

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

"The Japanese economic situation was solid in the first half of this year and the latest GDP figures showed that growth is paused for now.

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

The US administration has recently recognized the impact of tariffs on Americans, reducing tariffs on imported food products including beef, tomatoes, coffee and fruits amid increasing concerns about rising costs.

Economic Calendar

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