The Japanese economic system has shown a contraction for the first time in six quarters, mainly driven by declining overseas shipments because of newly imposed US trade duties.
Group of Seven Growth Standings
The Japanese economy has become the initial Group of Seven country to report an economic contraction in the most recent quarter.
As the United States yet to release its GDP figures for the third quarter, the current Group of Seven economic leaderboard indicate:
- The French economy: +0.5% expansion
- UK: 0.1 percent
- Canada: +0.1% (preliminary figure)
- Germany: zero growth
- Italian economy: no growth
- Japanese economy: negative 0.4 percent
Travel Shares Slump during Diplomatic Rift with China
In addition to the economic contraction, Japan is dealing with an escalating diplomatic conflict with China regarding Taiwan.
Stocks in Japanese travel and consumer companies have declined noticeably after China recommended its citizens to refrain from visiting to Japan.
This decision by Chinese authorities intensified a diplomatic feud that was initiated by remarks from Japan's recently appointed PM about the possibility of deploying troops in the case of a hypothetical Chinese attack on Taiwan.
The situation led to a wave of sell-offs across Japanese tourism-related stocks.
- The Tokyo Disneyland operator shares fell by 5.7%
- The department store chain tumbled by 11.3%
- Japan Airlines declined by 3.75%
"The ongoing dispute over Taiwan and Beijing's travel warning advising against visits to Japan introduces near-term difficulties for retail and hospitality sectors.
"Tourists from China account for roughly 25 percent of Japan's international visitors, making department stores, luxury retail, and tourism services especially at risk."
GDP Contraction Breakdown
Japanese gross domestic product dropped by 0.4% in the July-September quarter, as manufacturers' overseas shipments were affected by tariffs imposed by the US this year.
Overseas shipments were a primary driver of the contraction, falling by 1.2 percent compared with the previous quarter, and were 4.5% lower than a year ago.
Earlier this year, the US administration had threatened Japan with a new 25% tariff on its goods, which was later lowered to 15% when the two nations concluded a trade agreement.
Private demand also declined, by 0.3% quarter-on-quarter.
On an annual basis, Japan's GDP contracted by 1.8 percent in the three months through September.
"Japan's economy was stable in the first half of this year and today's GDP figures showed that growth is paused for now.
I anticipate Japan's economy to be returning on a gradual growth trend going forward."
The US administration has recently acknowledged the impact of tariffs on US consumers, reducing tariffs on imported food products including beef, produce, coffee and fruits amid increasing concerns about rising costs.
Economic Calendar
- 8am GMT: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
