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The Japanese economic system has recorded a contraction for the initial time in six quarters, mainly caused by declining overseas shipments as a result of newly imposed US trade duties.

G7 Growth Leaderboard

The Japanese economy has become the initial Group of Seven nation to report an GDP decline in the most recent three-month period.

With the US yet to publish its gross domestic product figures for the third quarter, the current G7 growth standings indicate:

• France: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canada: +0.1% (provisional estimate)
• German economy: 0%
• Italy: no growth
• Japanese economy: negative 0.4 percent

Travel Shares Slump amid Political Dispute with China

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

Shares in Japan's tourism and retail businesses have dropped significantly after China advised its citizens to refrain from traveling to Japan.

This action by Chinese authorities intensified a diplomatic feud that was sparked by comments from Japan's new prime minister about the possibility of sending forces in the case of a potential Chinese invasion on Taiwan.

The development led to a wave of selling across Japanese leisure stocks.

• Oriental Land stock dropped by 5.7 percent
• The department store chain plummeted by 11.3 percent
• The national carrier declined by 3.75%

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

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services especially vulnerable."

GDP Decline Breakdown

Japan's gross domestic product dropped by 0.4% in the July-September quarter, as manufacturers' overseas shipments were hit by duties levied by the US this year.

Overseas shipments were a key driver of the contraction, dropping by 1.2% compared with the previous 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 reduced to 15 percent when the two countries concluded a trade deal.

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

On an annualized basis, Japan's GDP contracted by 1.8 percent in the quarter through September.

"Japan's economy was strong in the initial six months of this year and today's GDP figures showed that momentum is halted for now.

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

The US administration has lately acknowledged the impact of tariffs on Americans, reducing tariffs on food imports including beef, tomatoes, coffee and fruits amid growing concerns about rising costs.

Economic Calendar

• 8am GMT: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August