The Japanese Economy Contracts as Exports Are Hit by American Tariffs

Japan's economy has recorded a drop for the first time in a year and a half, mainly driven by falling exports as a result of newly imposed American trade duties.

Group of Seven Economic Leaderboard

The Japanese economy stands as the initial Group of Seven country to report an economic contraction in the most recent three-month period.

As the US still needing to publish its gross domestic product figures for the third quarter, the present Group of Seven economic standings indicate:

• France: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (preliminary figure)
• German economy: 0%
• Italian economy: 0%
• Japan: -0.4%

Travel Shares Slump during Diplomatic Dispute with Beijing

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

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

This decision by Chinese authorities intensified a diplomatic feud that was initiated by statements from Japan's new prime minister about the potential of sending troops in the event of a potential Chinese invasion on Taiwan.

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

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

"The China-Japan tension over Taiwan and Beijing's advisory advising against visits to Japan brings short-term challenges for retail and hospitality sectors.

"Chinese visitors account for roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and hospitality especially at risk."

Economic Contraction Breakdown

Japanese gross domestic product declined by 0.4% in the July-September quarter, as industrial exports were hit by tariffs imposed by the US this year.

Overseas shipments were a major factor of the contraction, falling by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a year ago.

Previously, the American government had proposed Japan with a new 25 percent tariff on its products, which was later reduced to 15 percent when the two nations reached a trade agreement.

Consumer spending also declined, by 0.3 percent quarter-on-quarter.

On an annualized basis, Japan's GDP contracted by 1.8% in the quarter through September.

"The Japanese economic situation was solid in the initial six months of this year and the latest GDP figures showed that momentum is halted for now.

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

The White House has recently recognized the impact of tariffs on Americans, lowering tariffs on imported food products including beef, tomatoes, coffee and bananas amid increasing concerns about increasing costs.

Business Calendar

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