Japan's Economy Shrinks while Exports Face Impact by US Trade Duties

Japan's economy has experienced a decline for the initial time in six quarters, mainly caused by falling exports because of newly imposed US trade duties.

G7 Economic Leaderboard

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

With the United States yet to publish its GDP figures for the third quarter, the current Group of Seven growth leaderboard show:

• The French economy: +0.5% expansion
• UK: +0.1%
• Canada: +0.1% (preliminary figure)
• Germany: zero growth
• Italy: 0%
• Japan: -0.4%

Tourism Stocks Slump during Political Rift with China

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

Stocks in Japanese travel and consumer companies have declined noticeably after China urged its nationals to avoid traveling to Japan.

This move by Beijing escalated a political dispute that was triggered by statements from Japan's new PM about the potential of deploying troops in the event of a hypothetical Chinese attack on Taiwan.

The situation triggered a wave of selling across Japan's tourism-related shares.

• The Tokyo Disneyland operator stock dropped by 5.7 percent
• The department store chain plummeted by 11.3 percent
• The national carrier declined by 3.75%

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

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

Economic Decline Breakdown

Japan's gross domestic product declined by 0.4% in the third quarter, as manufacturers' exports were hit by tariffs levied by the US this year.

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

Earlier this year, the American government had threatened Japan with a additional 25 percent tariff on its products, which was later reduced to 15% when the two countries reached a trade agreement.

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

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

"The Japanese economic situation was stable in the initial six months of this year and today's GDP data showed that momentum is halted temporarily.

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

The US administration has recently acknowledged the effect of tariffs on Americans, lowering tariffs on food imports including meat, produce, beverages and fruits amid growing concerns about rising costs.

Business Calendar

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