The Japanese Economic Output Declines as Exports Face Impact by American Tariffs

The Japanese economic system has experienced a contraction for the initial time in six quarters, mainly caused by falling overseas shipments as a result of recent American trade duties.

G7 Economic Rankings

Japan stands as the first Group of Seven nation to announce an economic contraction in the previous quarter.

With the United States still needing to release its GDP data for the third quarter, the current Group of Seven growth leaderboard show:

• France: +0.5% expansion
• UK: 0.1 percent
• Canadian economy: 0.1 percent (provisional estimate)
• Germany: 0%
• Italian economy: 0%
• Japan: negative 0.4 percent

Travel Stocks Decline amid Political Dispute with Beijing

In addition to the GDP decline, Japan is facing an growing political dispute with China concerning Taiwan.

Shares in Japan's tourism and consumer firms have declined noticeably after China advised its residents to avoid traveling to Japan.

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

The development caused a surge of selling across Japan's leisure shares.

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

"The China-Japan tension over Taiwan and China's travel warning advising against visits to Japan introduces short-term challenges for retail and hospitality sectors.

"Chinese visitors represent roughly 25 percent of Japan's inbound traffic, making department stores, luxury retail, and tourism services especially at risk."

GDP Contraction Breakdown

Japanese gross domestic product declined by 0.4 percent in the third quarter, as manufacturers' exports were affected by duties levied by the United States recently.

Exports were a major driver of the contraction, falling 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 threatened Japan with a new 25% tariff on its products, which was later lowered to 15 percent when the two nations reached a trade agreement.

Private demand also fell, by 0.3 percent compared to the previous quarter.

On an annualized basis, Japan's real gross domestic product contracted by 1.8 percent in the quarter through September.

"Japan's economy was solid in the first half of this year and the latest GDP data showed that growth is halted temporarily.

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

The White House has lately recognized the effect of tariffs on US consumers, reducing tariffs on imported food products including beef, produce, beverages and fruits amid increasing concerns about rising costs.

Business Calendar

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