Japan's Economy Shrinks as Exports Are Hit by US Tariffs

The Japanese economic system has shown a decline for the initial time in a year and a half, primarily caused by declining exports as a result of recent US trade duties.

Group of Seven Economic Rankings

The Japanese economy has become the first Group of Seven country to report an economic contraction in the most recent quarter.

With the United States still needing to release its gross domestic product data for the third quarter, the current G7 economic rankings indicate:

• The French economy: +0.5% expansion
• UK: +0.1%
• Canada: 0.1 percent (preliminary figure)
• German economy: zero growth
• Italian economy: 0%
• Japan: negative 0.4 percent

Travel Stocks Decline amid Diplomatic Dispute with Beijing

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

Stocks in Japan's tourism and retail companies have fallen noticeably after China recommended its residents to refrain from traveling to Japan.

This action by Beijing intensified a diplomatic feud that was triggered by comments from Tokyo's recently appointed prime minister about the possibility of deploying troops in the event of a hypothetical Chinese attack on Taiwan.

The situation triggered a wave of sell-offs across Japan's leisure stocks.

• Oriental Land stock dropped by 5.7%
• The department store chain plummeted by 11.3%
• Japan Airlines declined by 3.75 percent

"The ongoing dispute over Taiwan and Beijing's travel warning discouraging travel to Japan brings near-term difficulties for consumer-facing sectors.

"Chinese visitors account for roughly 25% of Japan's inbound traffic, making department stores, high-end shopping, and tourism services especially at risk."

GDP Decline Breakdown

Japan's GDP declined by 0.4% in the July-September quarter, as industrial overseas shipments were affected by tariffs levied by the United States recently.

Overseas shipments were a major factor of the contraction, dropping by 1.2% compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

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

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

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

"Japan's economy was strong in the initial six months of this year and the latest GDP data showed that growth is paused for now.

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

The US administration has recently recognized the impact of tariffs on US consumers, lowering tariffs on imported food products including meat, produce, coffee and bananas amid growing concerns about rising costs.

Business Agenda

• 8am GMT: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August