Japan's Economic Output Shrinks while Overseas Sales Are Hit by US Tariffs
Japan's economy has experienced a contraction for the initial time in six quarters, primarily caused by falling exports because of newly imposed American tariffs.
G7 Growth Leaderboard
The Japanese economy stands as the first Group of Seven nation to disclose an output shrinkage in the latest three-month period.
As the US still needing to publish its gross domestic product data for the third quarter, the current Group of Seven growth standings indicate:
- France: 0.5 percent expansion
- United Kingdom: +0.1%
- Canada: 0.1 percent (provisional estimate)
- Germany: zero growth
- Italian economy: no growth
- Japan: -0.4%
Tourism Stocks Slump during Political Rift with Beijing
In addition to the GDP decline, Japan is experiencing an growing diplomatic tension with China concerning Taiwan.
Shares in Japanese tourism and consumer businesses have declined significantly after China urged its residents to avoid traveling to Japan.
This move by Beijing intensified a political dispute that was initiated by comments from Tokyo's recently appointed prime minister about the potential of sending troops in the event of a hypothetical Chinese invasion on Taiwan.
The situation led to a surge of selling across Japan's tourism-related shares.
- The Tokyo Disneyland operator stock fell by 5.7%
- Isetan Mitsukoshi tumbled by 11.3 percent
- The national carrier declined by 3.75 percent
"The ongoing tension over Taiwan and China's advisory advising against travel to Japan creates short-term difficulties for retail and hospitality sectors.
"Chinese visitors account for roughly 25% of Japan's inbound traffic, making department stores, high-end shopping, and hospitality especially at risk."
Economic Decline Details
Japan's GDP declined by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were affected by duties levied by the US this year.
Overseas shipments were a key driver of the contraction, falling by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a year ago.
Earlier this year, the US administration had proposed Japan with a new 25% tariff on its goods, which was later lowered to 15% when the two countries concluded a trade deal.
Private demand also declined, by 0.3% quarter-on-quarter.
On an annual basis, Japan's real gross domestic product 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 data showed that momentum is paused temporarily.
I anticipate Japan's economy to be returning on a moderate recovery trend going forward."
The White House has recently recognized the impact of tariffs on US consumers, lowering tariffs on imported food products including beef, tomatoes, coffee and bananas amid increasing concerns about rising costs.
Business Calendar
- 8am GMT: Swiss GDP report for Q3
- 3pm GMT: US construction spending data for August
