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Japan's economy has experienced a decline for the first time in six quarters, primarily driven by weakening exports because of newly imposed American tariffs.

Group of Seven Growth Rankings

Japan has become the initial G7 country to announce an GDP decline in the previous three-month period.

As the United States still needing to publish its GDP data for the third quarter, the current Group of Seven economic standings indicate:

• France: 0.5 percent quarterly growth
• United Kingdom: +0.1%
• Canadian economy: +0.1% (preliminary figure)
• German economy: zero growth
• Italy: no growth
• Japanese economy: negative 0.4 percent

Tourism Stocks Slump amid Political Rift with China

In addition to the economic contraction, Japan is facing an escalating diplomatic conflict with China regarding Taiwan.

Stocks in Japanese travel and retail businesses have dropped sharply after China urged its nationals to avoid visiting to Japan.

This decision by Chinese authorities heightened a diplomatic feud that was initiated by statements from Tokyo's new prime minister about the possibility of sending troops in the event of a hypothetical Chinese invasion on Taiwan.

The situation caused a surge of selling across Japanese tourism-related stocks.

• The Tokyo Disneyland operator shares dropped by 5.7%
• Isetan Mitsukoshi plummeted by 11.3 percent
• The national carrier fell by 3.75%

"The China-Japan dispute over Taiwan and China's advisory advising against visits to Japan brings short-term headwinds for consumer-facing sectors.

"Chinese visitors account for roughly 25% of Japan's inbound traffic, making department stores, high-end shopping, and hospitality particularly vulnerable."

Economic Contraction Details

Japanese GDP declined by 0.4 percent in the third quarter, as industrial exports were impacted by tariffs levied by the United States recently.

Overseas shipments were a key driver of the contraction, falling by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

Previously, the US administration had threatened Japan with a new 25 percent tariff on its products, which was later lowered to 15% when the two nations concluded a trade deal.

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

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

"The Japanese economic situation was strong in the initial six months of this year and the latest GDP data showed that growth is paused for now.

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

The US administration has lately recognized the effect of tariffs on Americans, lowering duties on food imports including beef, tomatoes, beverages and fruits amid increasing concerns about increasing costs.

Economic Agenda

• 8am GMT: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August