The Japanese Economy Contracts as Overseas Sales Face Impact by American Trade Duties

The Japanese economic system has experienced a contraction for the first time in six quarters, primarily driven by declining overseas shipments because of recent American trade duties.

Group of Seven Growth Leaderboard

Japan has become the initial Group of Seven country to announce an GDP decline in the latest three-month period.

With the United States still needing to release its gross domestic product figures for the third quarter, the current G7 economic leaderboard indicate:

• The French economy: +0.5% expansion
• United Kingdom: 0.1 percent
• Canada: +0.1% (preliminary figure)
• German economy: 0%
• Italian economy: no growth
• Japan: negative 0.4 percent

Travel Stocks Decline amid Political Rift with Beijing

Alongside the economic contraction, Japan is facing an growing diplomatic dispute with China regarding Taiwan.

Shares in Japanese travel and retail companies have dropped sharply after China recommended its nationals to refrain from visiting to Japan.

This move by Chinese authorities escalated a political dispute that was triggered by comments from Tokyo's recently appointed prime minister about the possibility of sending forces in the event of a hypothetical Chinese attack on Taiwan.

The situation led to a surge of sell-offs across Japanese tourism-related shares.

• Oriental Land shares dropped by 5.7%
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier fell by 3.75 percent

"The China-Japan tension over Taiwan and China's travel warning advising against travel to Japan introduces near-term headwinds for consumer-facing sectors.

"Tourists from China represent roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and tourism services particularly at risk."

Economic Contraction Details

Japan's GDP declined by 0.4 percent in the July-September quarter, as industrial overseas shipments were impacted by duties levied by the US this year.

Overseas shipments were a major factor of the contraction, dropping by 1.2% compared with the previous quarter, and were 4.5% lower than a the same period last year.

Previously, the US administration had threatened Japan with a new 25% tariff on its goods, which was later reduced to 15 percent when the two countries reached a trade agreement.

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

On an annualized basis, Japan's GDP shrank by 1.8 percent in the quarter through September.

"The Japanese economic situation was solid in the initial six months of this year and the latest GDP data showed that growth is halted for now.

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

The White House has recently recognized the impact of tariffs on US consumers, lowering tariffs on imported food products including meat, 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