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The Japanese economic system has recorded a contraction for the first time in six quarters, mainly caused by declining overseas shipments because of recent US tariffs.

G7 Growth Standings

Japan has become the first Group of Seven economy to disclose an output shrinkage in the latest quarter.

With the United States still needing to publish its gross domestic product data for the third quarter, the present G7 growth standings indicate:

• France: 0.5 percent quarterly growth
• UK: 0.1 percent
• Canadian economy: +0.1% (provisional estimate)
• Germany: 0%
• Italian economy: 0%
• Japan: negative 0.4 percent

Tourism Stocks Decline amid Political Rift with China

Alongside the economic contraction, Japan is experiencing an growing political conflict with China regarding Taiwan.

Stocks in Japanese tourism and consumer companies have fallen sharply after China urged its residents to avoid traveling to Japan.

This move by Beijing escalated a political dispute that was triggered by remarks from Tokyo's new prime minister about the potential of sending troops in the case of a hypothetical Chinese attack on Taiwan.

The development led to a wave of sell-offs across Japanese tourism-related stocks.

• The Tokyo Disneyland operator stock dropped by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3%
• The national carrier fell by 3.75%

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

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

GDP Decline Breakdown

Japanese gross domestic product fell by 0.4 percent in the July-September quarter, as industrial overseas shipments were affected by duties imposed by the US this year.

Exports were a major factor of the decline, dropping by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a year ago.

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

Consumer spending also declined, by 0.3% compared to the previous quarter.

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

"Japan's economy was strong in the initial six months of this year and today's GDP data showed that growth is halted temporarily.

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

The US administration has lately recognized the effect of tariffs on Americans, lowering duties on imported food products including meat, tomatoes, beverages and bananas amid increasing concerns about rising costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August