Japan's Economy Contracts while Exports Are Hit by US Tariffs
The Japanese economic system has shown a contraction for the initial time in a year and a half, mainly driven by weakening exports due to newly imposed US tariffs.
G7 Growth Standings
Japan stands as the first G7 nation to report an GDP decline in the previous three-month period.
As the US still needing to release its gross domestic product figures for the third quarter, the present Group of Seven growth standings indicate:
- France: +0.5% quarterly growth
- UK: 0.1 percent
- Canada: 0.1 percent (preliminary figure)
- German economy: 0%
- Italy: 0%
- Japan: negative 0.4 percent
Travel Shares Slump during Political Rift with China
Alongside the GDP decline, Japan is facing an growing political dispute with China regarding Taiwan.
Stocks in Japanese travel and retail businesses have dropped noticeably after China advised its citizens to refrain from traveling to Japan.
This action by Chinese authorities escalated a diplomatic feud that was initiated by statements from Japan's recently appointed prime minister about the possibility of sending forces in the case of a hypothetical Chinese attack on Taiwan.
The development led to a wave of sell-offs across Japanese tourism-related stocks.
- The Tokyo Disneyland operator shares fell by 5.7%
- Isetan Mitsukoshi plummeted by 11.3%
- Japan Airlines fell by 3.75 percent
"The ongoing tension over Taiwan and China's advisory advising against travel to Japan brings short-term difficulties for consumer-facing sectors.
"Chinese visitors represent roughly 25% of Japan's international visitors, making department stores, high-end shopping, and hospitality especially vulnerable."
Economic Contraction Breakdown
Japanese GDP dropped by 0.4 percent in the July-September quarter, as industrial overseas shipments were affected by tariffs levied by the US this year.
Exports were a primary driver of the decline, falling by 1.2 percent compared with the April-June 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 reached a trade agreement.
Consumer spending also declined, by 0.3 percent compared to the previous quarter.
On an annual basis, Japan's real gross domestic product shrank by 1.8 percent in the three months through September.
"Japan's economy was strong in the initial six months of this year and today's GDP data showed that momentum is paused temporarily.
I anticipate Japan's economy to be back on a moderate growth trend going forward."
The White House has recently acknowledged the impact of tariffs on US consumers, lowering duties on imported food products including beef, tomatoes, coffee and bananas amid growing concerns about increasing costs.
Business Agenda
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 3pm GMT: US construction spending data for August
