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The Japanese economic system has shown a decline for the first time in six quarters, largely caused by falling overseas shipments as a result of recent American trade duties.

G7 Economic Rankings

The Japanese economy stands as the first G7 nation to disclose an output shrinkage in the latest quarter.

With the US still needing to release its GDP data for the third quarter, the current G7 economic standings indicate:

• France: 0.5 percent expansion
• UK: 0.1 percent
• Canada: +0.1% (provisional estimate)
• German economy: 0%
• Italy: no growth
• Japanese economy: -0.4%

Travel Stocks Decline amid Political Dispute with Beijing

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

Shares in Japan's travel and retail companies have fallen significantly after China advised its nationals to avoid traveling to Japan.

This decision by Beijing intensified a political dispute that was sparked by statements from Tokyo's recently appointed PM about the potential of deploying forces in the event of a potential Chinese attack on Taiwan.

The development led to a wave of sell-offs across Japanese tourism-related shares.

• The Tokyo Disneyland operator shares fell by 5.7%
• The department store chain plummeted by 11.3%
• Japan Airlines fell by 3.75 percent

"The ongoing tension over Taiwan and Beijing's travel warning advising against visits to Japan brings short-term challenges for retail and hospitality sectors.

"Chinese visitors represent roughly 25% of Japan's inbound traffic, making retail outlets, high-end shopping, and tourism services especially vulnerable."

Economic Decline Breakdown

Japan's gross domestic product declined by 0.4% in the July-September quarter, as industrial overseas shipments were hit by tariffs imposed by the US this year.

Exports were a key 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 American government had proposed Japan with a additional 25 percent tariff on its goods, which was later lowered to 15% when the two nations concluded a trade agreement.

Private demand also declined, by 0.3% quarter-on-quarter.

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

"Japan's economy was stable in the initial six months of this year and the latest GDP data showed that growth is halted temporarily.

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

The US administration has recently recognized the effect of tariffs on Americans, lowering tariffs on imported food products including meat, produce, coffee and bananas amid increasing concerns about rising costs.

Economic Calendar

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August