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The Japanese economic system has recorded a drop for the initial time in a year and a half, primarily driven by weakening overseas shipments because of newly imposed American trade duties.

Group of Seven Economic Leaderboard

Japan has become the initial G7 country to report an GDP decline in the most recent three-month period.

With the US still needing to publish its gross domestic product data for the third quarter, the current G7 growth standings indicate:

• The French economy: +0.5% quarterly growth
• UK: +0.1%
• Canada: 0.1 percent (preliminary figure)
• German economy: zero growth
• Italy: no growth
• Japan: negative 0.4 percent

Tourism Stocks Slump during Political Rift with Beijing

Alongside the economic contraction, Japan is experiencing an escalating diplomatic tension with China concerning Taiwan.

Stocks in Japan's tourism and consumer firms have dropped noticeably after China recommended its nationals to refrain from visiting to Japan.

This decision by Beijing escalated a political dispute that was triggered by remarks from Japan's new PM about the potential of sending troops in the event of a potential Chinese invasion on Taiwan.

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

• Oriental Land stock fell by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3 percent
• The national carrier fell by 3.75%

"The ongoing tension over Taiwan and China's travel warning advising against travel to Japan introduces near-term challenges for consumer-facing sectors.

"Tourists from China represent roughly 25% of Japan's inbound traffic, making retail outlets, high-end shopping, and hospitality especially vulnerable."

Economic Contraction Details

Japan's GDP declined by 0.4% in the third quarter, as manufacturers' exports were impacted by duties imposed by the United States this year.

Exports were a primary factor of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5% 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 reduced to 15% when the two countries reached a trade deal.

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

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

"The Japanese economic situation was stable in the first half of this year and the latest GDP data showed that growth is paused temporarily.

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

The White House has recently recognized the impact of tariffs on US consumers, reducing duties on food imports including beef, tomatoes, beverages and fruits amid increasing concerns about increasing costs.

Economic Calendar

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