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The Japanese economic system has recorded a drop for the first time in six quarters, primarily driven by falling overseas shipments as a result of newly imposed US trade duties.

G7 Growth Standings

Japan stands as the initial Group of Seven country to disclose an GDP decline in the most recent three-month period.

With the United States still needing to release its GDP figures for the third quarter, the present G7 growth leaderboard indicate:

• The French economy: 0.5 percent quarterly growth
• UK: 0.1 percent
• Canada: 0.1 percent (preliminary figure)
• Germany: zero growth
• Italian economy: 0%
• Japanese economy: -0.4%

Tourism Shares Slump during Diplomatic Rift with Beijing

In addition to the GDP decline, Japan is experiencing an growing political tension with China regarding Taiwan.

Shares in Japanese tourism and consumer companies have declined sharply after China advised its nationals to refrain from traveling to Japan.

This action by Beijing escalated a political dispute that was initiated by comments from Japan's recently appointed prime minister about the possibility of sending troops in the event of a potential Chinese invasion on Taiwan.

The situation triggered a wave of sell-offs across Japan's leisure shares.

• Oriental Land stock dropped by 5.7%
• The department store chain plummeted by 11.3%
• Japan Airlines fell by 3.75 percent

"The China-Japan dispute over Taiwan and Beijing's travel warning advising against travel to Japan creates near-term difficulties for retail and hospitality sectors.

"Chinese visitors represent roughly 25% of Japan's inbound traffic, making department stores, high-end shopping, and hospitality especially at risk."

Economic Decline Breakdown

Japan's GDP declined by 0.4% in the third quarter, as industrial overseas shipments were affected by duties levied by the US recently.

Overseas shipments were a key driver of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.

Earlier this year, the US administration had proposed Japan with a new 25 percent tariff on its products, which was later reduced to 15 percent when the two countries reached a trade agreement.

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

On an annual 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 first half of this year and the latest GDP figures showed that growth is halted temporarily.

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

The US administration has lately acknowledged the effect of tariffs on Americans, reducing tariffs on imported food products including meat, produce, coffee and bananas amid growing concerns about increasing costs.

Economic Calendar

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