Japan's Economic Output Declines as Exports Suffer by American Trade Duties

Japan's economy has experienced a contraction for the first time in a year and a half, mainly caused by falling exports due to newly imposed US tariffs.

G7 Growth Standings

The Japanese economy stands as the initial G7 country to announce an economic contraction in the latest quarter.

As the US still needing to release its GDP figures for the third quarter, the current G7 economic standings indicate:

The French economy: 0.5 percent expansion
UK: 0.1 percent
Canadian economy: 0.1 percent (preliminary figure)
Germany: zero growth
Italy: 0%
Japanese economy: negative 0.4 percent

Tourism Shares Decline amid Political Dispute with China

Alongside the economic contraction, Japan is dealing with an growing political conflict with China regarding Taiwan.

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

This decision by Beijing heightened a political dispute that was initiated by remarks from Japan's new PM about the possibility of deploying forces in the case of a potential Chinese invasion on Taiwan.

The development caused a wave of selling across Japanese leisure stocks.

Oriental Land shares dropped by 5.7%
The department store chain plummeted by 11.3 percent
Japan Airlines declined by 3.75 percent

"The ongoing dispute over Taiwan and China's advisory advising against travel to Japan creates near-term headwinds for consumer-facing sectors.

"Chinese visitors account for roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and hospitality particularly vulnerable."

Economic Contraction Details

Japan's GDP dropped by 0.4 percent in the July-September quarter, as manufacturers' exports were affected by tariffs levied by the US recently.

Overseas shipments were a primary factor of the contraction, falling by 1.2 percent compared with the April-June quarter, and were 4.5% lower than a year ago.

Previously, 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 nations reached a trade agreement.

Private demand also declined, by 0.3% quarter-on-quarter.

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

"The Japanese economic situation was solid in the first half of this year and the latest GDP figures showed that growth is halted temporarily.

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

The White House has recently recognized the effect of tariffs on Americans, reducing tariffs on food imports including beef, produce, coffee and bananas amid increasing concerns about increasing costs.