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Japan's economy has experienced a drop for the first time in a year and a half, primarily driven by falling exports due to newly imposed American tariffs.

G7 Economic Standings

Japan stands as the first G7 economy to report an economic contraction in the latest quarter.

As the United States still needing to publish its gross domestic product figures for the third quarter, the current G7 growth rankings indicate:

• France: 0.5 percent quarterly growth
• United Kingdom: +0.1%
• Canadian economy: 0.1 percent (provisional estimate)
• Germany: zero growth
• Italy: no growth
• Japan: negative 0.4 percent

Tourism Stocks Slump during Diplomatic Dispute with China

Alongside the economic contraction, Japan is facing an growing diplomatic conflict with China regarding Taiwan.

Stocks in Japan's travel and consumer companies have declined noticeably after China recommended its citizens to refrain from traveling to Japan.

This decision by Chinese authorities intensified a diplomatic feud that was initiated by remarks from Tokyo's recently appointed PM about the possibility of sending forces in the event of a hypothetical Chinese attack on Taiwan.

The situation triggered a wave of selling across Japanese leisure stocks.

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

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

"Tourists from China represent roughly 25% of Japan's inbound traffic, making department stores, luxury retail, and hospitality particularly vulnerable."

Economic Decline Breakdown

Japanese gross domestic product fell by 0.4 percent in the July-September quarter, as industrial overseas shipments were affected by tariffs levied by the US this year.

Overseas shipments were a primary driver of the decline, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a year ago.

Previously, the American government had proposed Japan with a new 25% tariff on its products, which was later lowered to 15% when the two countries concluded a trade deal.

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

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

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

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

The US administration has lately recognized the effect of tariffs on US consumers, reducing duties on imported food products including meat, produce, beverages and fruits amid growing concerns about rising costs.

Economic Calendar

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