The Japanese Economic Output Contracts while Overseas Sales Are Hit by American Tariffs
Japan's economy has experienced a drop for the first time in six quarters, mainly driven by declining overseas shipments due to newly imposed American trade duties.
G7 Economic Leaderboard
The Japanese economy has become the first Group of Seven economy to report an economic contraction in the most recent quarter.
As the United States still needing to release its gross domestic product data for the third quarter, the current Group of Seven growth leaderboard indicate:
- The French economy: 0.5 percent expansion
- UK: +0.1%
- Canada: +0.1% (provisional estimate)
- German economy: zero growth
- Italian economy: no growth
- Japan: negative 0.4 percent
Travel Stocks Decline amid Political Rift with China
In addition to the economic contraction, Japan is facing an intensifying diplomatic tension with China regarding Taiwan.
Stocks in Japan's tourism and consumer companies have fallen noticeably after China urged its nationals to avoid traveling to Japan.
This move by Chinese authorities heightened a political dispute that was initiated by statements from Japan's recently appointed prime minister about the possibility of deploying troops in the event of a hypothetical Chinese attack on Taiwan.
The development triggered a wave of selling across Japan's leisure shares.
- Oriental Land stock fell by 5.7 percent
- The department store chain plummeted by 11.3 percent
- Japan Airlines declined by 3.75%
"The ongoing dispute over Taiwan and China's advisory advising against visits to Japan brings near-term difficulties for consumer-facing sectors.
"Chinese visitors represent roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and tourism services particularly vulnerable."
GDP Contraction Breakdown
Japanese gross domestic product dropped by 0.4% in the July-September quarter, as manufacturers' overseas shipments were hit by tariffs imposed by the United States this year.
Overseas shipments were a major driver of the decline, dropping by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a year ago.
Earlier this year, the American government had proposed Japan with a additional 25% tariff on its products, which was later lowered to 15% when the two countries reached a trade deal.
Private demand also declined, by 0.3% compared to the previous quarter.
On an annualized basis, Japan's GDP contracted by 1.8 percent in the three months through September.
"The Japanese economic situation was strong in the first half of this year and today's GDP figures showed that momentum is paused temporarily.
I anticipate Japan's economy to be returning on a gradual recovery trend going forward."
The US administration has lately acknowledged the effect of tariffs on US consumers, lowering duties on imported food products including beef, tomatoes, beverages and bananas amid increasing concerns about rising costs.
Economic Calendar
- 8am GMT: Switzerland GDP report for Q3
- 3pm GMT: US construction spending data for August
