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The Japanese economic system has recorded a contraction for the first time in a year and a half, mainly caused by declining exports due to recent American tariffs.

G7 Economic Leaderboard

Japan has become the first G7 country to report an output shrinkage in the previous quarter.

As the United States still needing to publish its GDP figures for the third quarter, the current G7 economic rankings indicate:

• France: 0.5 percent expansion
• UK: +0.1%
• Canadian economy: +0.1% (preliminary figure)
• German economy: 0%
• Italian economy: no growth
• Japanese economy: negative 0.4 percent

Travel Shares Slump during Political Rift with Beijing

Alongside the economic contraction, Japan is experiencing an growing diplomatic dispute with China regarding Taiwan.

Stocks in Japanese travel and retail companies have dropped sharply after China urged its citizens to avoid traveling to Japan.

This action by Chinese authorities heightened a diplomatic feud that was sparked by statements from Tokyo's new prime minister about the possibility of deploying troops in the event of a hypothetical Chinese attack on Taiwan.

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

• Oriental Land stock dropped by 5.7%
• Isetan Mitsukoshi tumbled by 11.3 percent
• Japan Airlines fell by 3.75%

"The ongoing tension over Taiwan and Beijing's advisory advising against visits to Japan introduces near-term headwinds for retail and hospitality sectors.

"Chinese visitors represent roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and hospitality particularly vulnerable."

GDP Decline Details

Japan's GDP declined by 0.4 percent in the July-September quarter, as manufacturers' exports were impacted by tariffs levied by the United States this year.

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

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

Consumer spending also declined, by 0.3 percent quarter-on-quarter.

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

"The Japanese economic situation was solid in the first half of this year and today's GDP figures showed that momentum is halted temporarily.

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

The White House has recently acknowledged the effect of tariffs on US consumers, reducing duties on food imports including meat, produce, coffee and bananas amid growing concerns about increasing costs.

Economic Calendar

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