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

G7 Economic Standings

Japan stands as the initial Group of Seven economy to report an output shrinkage in the most recent three-month period.

With the US yet to release its GDP figures for the third quarter, the present Group of Seven growth rankings show:

• France: +0.5% quarterly growth
• UK: 0.1 percent
• Canada: +0.1% (preliminary figure)
• Germany: zero growth
• Italy: no growth
• Japanese economy: -0.4%

Travel Shares Slump amid Diplomatic Dispute with Beijing

Alongside the economic contraction, Japan is facing an growing political tension with China regarding Taiwan.

Shares in Japanese tourism and retail companies have fallen sharply after China urged its residents to refrain from traveling to Japan.

This move by Chinese authorities intensified a political dispute that was triggered by comments from Japan's new PM about the possibility of deploying troops in the case of a potential Chinese attack on Taiwan.

The situation led to a surge of sell-offs across Japanese tourism-related stocks.

• Oriental Land shares fell by 5.7%
• Isetan Mitsukoshi tumbled by 11.3%
• The national carrier declined by 3.75%

"The ongoing tension over Taiwan and China's advisory discouraging travel to Japan brings near-term challenges for consumer-facing sectors.

"Tourists from China account for roughly 25 percent of Japan's international visitors, making retail outlets, high-end shopping, and hospitality particularly at risk."

GDP Decline Breakdown

Japanese gross domestic product fell by 0.4% in the third quarter, as manufacturers' exports were hit by duties levied by the United States recently.

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

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

Consumer spending also fell, by 0.3% quarter-on-quarter.

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

"Japan's economy was solid in the initial six months of this year and the latest GDP figures showed that momentum is paused temporarily.

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

The US administration has recently recognized the effect of tariffs on Americans, lowering duties on food imports including meat, tomatoes, beverages and bananas amid growing concerns about rising costs.

Economic Agenda

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