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Japan's economy has recorded a decline for the first time in six quarters, largely caused by weakening overseas shipments because of newly imposed US trade duties.

G7 Economic Standings

The Japanese economy stands as the first Group of Seven nation to announce an output shrinkage in the latest three-month period.

As the United States yet to release its gross domestic product data for the third quarter, the current G7 growth leaderboard indicate:

• France: +0.5% quarterly growth
• UK: +0.1%
• Canadian economy: 0.1 percent (preliminary figure)
• Germany: zero growth
• Italian economy: no growth
• Japan: -0.4%

Travel Shares Decline during Political Rift with China

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

Shares in Japanese tourism and consumer companies have declined noticeably after China urged its citizens to refrain from traveling to Japan.

This move by Chinese authorities intensified a political dispute that was initiated by comments from Japan's recently appointed PM about the potential of deploying troops in the event of a hypothetical Chinese attack on Taiwan.

The situation caused a surge of selling across Japan's leisure shares.

• The Tokyo Disneyland operator stock dropped by 5.7%
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier declined by 3.75%

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

"Chinese visitors represent roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and tourism services particularly vulnerable."

GDP Contraction Breakdown

Japanese GDP dropped by 0.4% in the July-September quarter, as industrial exports were hit by tariffs imposed by the United States this year.

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

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

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

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

"Japan's economy was stable in the first half of this year and the latest GDP data showed that momentum is paused temporarily.

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

The US administration has lately recognized the effect of tariffs on US consumers, lowering tariffs on food imports including meat, produce, beverages and fruits amid increasing concerns about rising costs.

Business Calendar

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