The Japanese Economy Contracts as Overseas Sales Suffer by US Tariffs
Japan's economy has shown a contraction for the initial time in a year and a half, primarily driven by weakening exports due to newly imposed American tariffs.
G7 Economic Rankings
The Japanese economy has become the initial G7 nation to disclose an GDP decline in the most recent three-month period.
With the United States still needing to release its gross domestic product data for the third quarter, the current G7 economic rankings indicate:
- France: +0.5% quarterly growth
- United Kingdom: 0.1 percent
- Canadian economy: 0.1 percent (provisional estimate)
- Germany: zero growth
- Italy: 0%
- Japanese economy: negative 0.4 percent
Travel Stocks Decline during Political Rift with Beijing
Alongside the GDP decline, Japan is facing an escalating diplomatic dispute with China concerning Taiwan.
Shares in Japan's travel and consumer firms have dropped significantly after China advised its citizens to refrain from visiting 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 deploying forces in the event of a potential Chinese invasion on Taiwan.
The situation triggered a surge of sell-offs across Japanese tourism-related shares.
- Oriental Land stock fell by 5.7 percent
- Isetan Mitsukoshi plummeted by 11.3 percent
- The national carrier fell by 3.75%
"The China-Japan tension over Taiwan and Beijing's advisory discouraging 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 retail outlets, luxury retail, and tourism services particularly at risk."
Economic Contraction Breakdown
Japanese GDP fell by 0.4% in the third quarter, as industrial exports were hit by tariffs imposed by the United States this year.
Overseas shipments were a major driver of the decline, falling by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.
Earlier this year, the US administration had proposed Japan with a new 25 percent tariff on its goods, which was later reduced to 15% when the two nations concluded a trade deal.
Consumer spending also declined, by 0.3% compared to the previous quarter.
On an annual basis, Japan's GDP shrank by 1.8 percent in the three months through September.
"The Japanese economic situation was solid in the first half of this year and today's GDP figures showed that momentum is paused for now.
I expect Japan's economy to be back on a gradual recovery trend going forward."
The US administration has recently acknowledged the effect of tariffs on Americans, reducing duties on food imports including meat, tomatoes, beverages and fruits amid growing concerns about rising costs.
Business Agenda
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
