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Japan's economy has shown a contraction for the initial time in six quarters, mainly driven by falling exports because of recent US tariffs.

G7 Economic Leaderboard

Japan has become the initial Group of Seven country to announce an output shrinkage in the most recent quarter.

With the US yet to publish its GDP data for the third quarter, the present G7 economic standings display:

• France: +0.5% quarterly growth
• UK: +0.1%
• Canada: 0.1 percent (provisional estimate)
• Germany: zero growth
• Italy: no growth
• Japanese economy: -0.4%

Tourism Stocks Decline during Political Dispute with Beijing

Alongside the economic contraction, Japan is dealing with an escalating diplomatic tension with China regarding Taiwan.

Stocks in Japan's tourism and consumer firms have declined sharply after China advised its citizens to avoid traveling to Japan.

This move by Chinese authorities escalated a political dispute that was triggered by remarks from Tokyo's recently appointed prime minister about the potential of deploying forces in the event of a potential Chinese invasion on Taiwan.

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

• The Tokyo Disneyland operator shares fell by 5.7 percent
• The department store chain tumbled by 11.3%
• Japan Airlines declined by 3.75 percent

"The ongoing dispute over Taiwan and China's advisory discouraging visits to Japan introduces near-term difficulties for consumer-facing sectors.

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

Economic Decline Breakdown

Japanese GDP fell by 0.4 percent in the third quarter, as industrial overseas shipments were affected by tariffs imposed by the US recently.

Overseas shipments were a major driver of the decline, dropping 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 additional 25 percent tariff on its goods, which was later reduced to 15% when the two countries concluded a trade agreement.

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

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

"The Japanese economic situation was stable in the first half of this year and today's GDP data showed that momentum is paused for now.

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

The White House has lately acknowledged the impact of tariffs on US consumers, reducing tariffs on imported food products including meat, produce, beverages and fruits amid increasing concerns about increasing costs.

Business Calendar

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