Japan's Economic Output Contracts as Overseas Sales Are Hit by US Tariffs

Japan's economy has recorded a decline for the first time in a year and a half, mainly caused by falling overseas shipments because of newly imposed US trade duties.

G7 Growth Standings

The Japanese economy has become the initial G7 nation to disclose an economic contraction in the most recent quarter.

With the US yet to publish its gross domestic product data for the third quarter, the present Group of Seven economic rankings display:

• France: 0.5 percent expansion
• UK: +0.1%
• Canadian economy: +0.1% (provisional estimate)
• German economy: 0%
• Italian economy: no growth
• Japan: negative 0.4 percent

Travel Stocks Slump during Political Dispute with China

In addition to the GDP decline, Japan is facing an intensifying diplomatic conflict with China concerning Taiwan.

Shares in Japan's tourism and consumer firms have declined sharply after China urged its citizens to avoid visiting to Japan.

This action by Chinese authorities escalated a diplomatic feud that was initiated by comments from Japan's new prime minister about the potential of sending forces in the case of a potential Chinese invasion on Taiwan.

The development caused a surge of selling across Japan's tourism-related shares.

• The Tokyo Disneyland operator stock dropped by 5.7 percent
• The department store chain tumbled by 11.3%
• Japan Airlines fell by 3.75%

"The ongoing dispute over Taiwan and China's travel warning discouraging travel to Japan creates near-term challenges for consumer-facing sectors.

"Chinese visitors represent roughly 25% of Japan's inbound traffic, making department stores, luxury retail, and hospitality particularly at risk."

GDP Decline Details

Japan's GDP dropped by 0.4% in the third quarter, as manufacturers' overseas shipments were hit by tariffs levied by the US this year.

Exports were a major factor of the decline, falling by 1.2% compared with the previous quarter, and were 4.5% lower than a year ago.

Earlier this year, the American government had threatened Japan with a additional 25 percent tariff on its products, which was later lowered to 15 percent when the two countries concluded a trade agreement.

Consumer spending also declined, by 0.3 percent compared to the previous quarter.

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

"The Japanese economic situation was solid in the first half of this year and the latest GDP figures showed that growth is halted temporarily.

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

The White House has lately recognized the impact of tariffs on US consumers, lowering duties on food imports including beef, produce, coffee and bananas amid increasing concerns about increasing costs.

Business Calendar

• 8am GMT: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August