Japan's Economy Shrinks as Exports Face Impact by US Tariffs
Japan's economy has shown a decline for the first time in a year and a half, mainly driven by declining overseas shipments as a result of recent American tariffs.
Group of Seven Growth Leaderboard
The Japanese economy stands as the first Group of Seven nation to disclose an output shrinkage in the most recent three-month period.
As the United States still needing to release its GDP figures for the third quarter, the current Group of Seven growth leaderboard indicate:
- France: +0.5% quarterly growth
- United Kingdom: 0.1 percent
- Canadian economy: 0.1 percent (provisional estimate)
- Germany: zero growth
- Italy: 0%
- Japan: -0.4%
Tourism Shares Decline amid Political Dispute with Beijing
Alongside the economic contraction, Japan is experiencing an growing diplomatic tension with China regarding Taiwan.
Shares in Japan's tourism and consumer businesses have dropped noticeably after China advised its residents to avoid visiting to Japan.
This action by Chinese authorities escalated a diplomatic feud that was triggered by remarks from Japan's new PM about the potential of sending forces in the event of a hypothetical Chinese invasion on Taiwan.
The development caused a wave of selling across Japanese leisure stocks.
- Oriental Land shares fell by 5.7%
- Isetan Mitsukoshi plummeted by 11.3%
- Japan Airlines declined by 3.75 percent
"The ongoing dispute over Taiwan and Beijing's travel warning discouraging visits to Japan creates short-term difficulties for retail and hospitality sectors.
"Chinese visitors represent roughly 25% of Japan's international visitors, making department stores, high-end shopping, and hospitality particularly at risk."
GDP Decline Breakdown
Japan's GDP dropped by 0.4 percent in the third quarter, as industrial exports were hit by tariffs levied by the United States this year.
Overseas shipments were a primary factor of the decline, falling by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a year ago.
Previously, the US administration had proposed Japan with a new 25% tariff on its goods, which was later lowered to 15% when the two nations concluded a trade deal.
Consumer spending also fell, by 0.3 percent compared to the previous quarter.
On an annual basis, Japan's GDP shrank by 1.8% in the three months 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 gradual recovery trend going forward."
The US administration has recently acknowledged the effect of tariffs on Americans, reducing tariffs on imported food products including beef, produce, coffee and fruits amid increasing concerns about rising costs.
Economic Agenda
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 3pm GMT: US construction spending data for August
