The Japanese Economic Output Contracts while Exports Are Hit by American Tariffs
Japan's economy has experienced a contraction for the first time in a year and a half, largely caused by falling exports due to recent US tariffs.
G7 Growth Standings
The Japanese economy stands as the initial G7 nation to report an economic contraction in the previous three-month period.
As the US still needing to publish its gross domestic product figures for the third quarter, the current G7 economic standings indicate:
- The French economy: +0.5% expansion
- UK: 0.1 percent
- Canada: +0.1% (preliminary figure)
- German economy: 0%
- Italian economy: no growth
- Japanese economy: -0.4%
Travel Stocks Decline amid Political Rift with Beijing
Alongside the GDP decline, Japan is experiencing an growing political dispute with China regarding Taiwan.
Stocks in Japanese tourism and consumer businesses have fallen significantly after China advised its nationals to avoid traveling to Japan.
This decision by Beijing intensified a political dispute that was sparked by remarks from Japan's new prime minister about the possibility of deploying forces in the case of a potential Chinese attack on Taiwan.
The development led to a surge of sell-offs across Japan's leisure stocks.
- Oriental Land shares fell by 5.7%
- The department store chain plummeted by 11.3%
- Japan Airlines declined by 3.75 percent
"The China-Japan tension over Taiwan and China's advisory discouraging travel to Japan brings near-term difficulties for retail and hospitality sectors.
"Tourists from China account for roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and tourism services particularly vulnerable."
GDP Decline Breakdown
Japanese GDP declined by 0.4% in the July-September quarter, as manufacturers' exports were impacted by duties levied by the United States this year.
Overseas shipments were a primary factor of the contraction, falling by 1.2% compared with the April-June quarter, and were 4.5% lower than a the same period last year.
Previously, the US administration had proposed Japan with a additional 25 percent tariff on its products, which was later lowered to 15% when the two nations concluded a trade agreement.
Consumer spending 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 quarter through September.
"The Japanese economic situation was strong in the initial six months of this year and the latest GDP figures showed that momentum is paused temporarily.
I expect Japan's economy to be back on a moderate recovery trend going forward."
The US administration has recently recognized the impact of tariffs on US consumers, lowering tariffs on food imports including beef, tomatoes, beverages and bananas amid increasing concerns about increasing costs.
Business Calendar
- 8am GMT: Switzerland GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
