Japan's Economic Output Declines as Exports Suffer by American Trade Duties

Japan's economy has shown a drop for the initial time in six quarters, largely caused by weakening exports due to recent US trade duties.

G7 Economic Leaderboard

The Japanese economy has become the initial Group of Seven economy to announce an economic contraction in the previous quarter.

As the United States yet to publish its GDP data for the third quarter, the current G7 growth standings indicate:

• The French economy: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canadian economy: +0.1% (preliminary figure)
• German economy: 0%
• Italy: 0%
• Japan: -0.4%

Tourism Stocks Slump during Political Rift with Beijing

Alongside the economic contraction, Japan is dealing with an growing diplomatic tension with China regarding Taiwan.

Shares in Japanese tourism and retail businesses have fallen significantly after China urged its nationals to refrain from traveling to Japan.

This decision by Beijing heightened a diplomatic feud that was sparked by comments from Tokyo's new PM about the potential of sending troops in the case of a potential Chinese attack on Taiwan.

The situation led to a surge of sell-offs across Japan's leisure shares.

• Oriental Land stock fell by 5.7 percent
• The department store chain tumbled by 11.3 percent
• The national carrier declined by 3.75 percent

"The ongoing dispute over Taiwan and China's advisory discouraging travel to Japan creates near-term difficulties for retail and hospitality sectors.

"Chinese visitors represent roughly 25 percent of Japan's inbound traffic, making department stores, luxury retail, and hospitality especially vulnerable."

Economic Decline Breakdown

Japanese gross domestic product declined by 0.4% in the July-September quarter, as manufacturers' exports were impacted by tariffs levied by the US recently.

Exports were a key factor of the contraction, falling by 1.2 percent compared with the April-June quarter, and were 4.5% lower than a year ago.

Earlier this year, the American government had proposed Japan with a additional 25 percent tariff on its goods, which was later reduced to 15 percent when the two countries concluded a trade deal.

Consumer spending also fell, by 0.3% quarter-on-quarter.

On an annualized basis, Japan's real gross domestic product shrank by 1.8% in the quarter through September.

"Japan's economy was solid in the initial six months of this year and the latest GDP figures showed that growth is paused temporarily.

I expect Japan's economy to be back on a moderate recovery trend going forward."

The White House has lately recognized the impact of tariffs on Americans, reducing duties on food imports including beef, tomatoes, coffee and fruits amid increasing concerns about rising costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August