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The Japanese economic system has recorded a decline for the first time in a year and a half, largely caused by weakening exports because of newly imposed US tariffs.

G7 Growth Rankings

Japan stands as the first G7 nation to disclose an GDP decline in the previous three-month period.

As the United States still needing to release its gross domestic product figures for the third quarter, the present G7 economic standings show:

• France: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (provisional estimate)
• German economy: 0%
• Italian economy: 0%
• Japanese economy: negative 0.4 percent

Tourism Stocks Slump amid Diplomatic Dispute with China

Alongside the GDP decline, Japan is facing an escalating diplomatic tension with China regarding Taiwan.

Stocks in Japan's travel and retail firms have fallen sharply after China urged its citizens to refrain from visiting to Japan.

This move by Chinese authorities heightened a political dispute that was initiated by remarks from Japan's recently appointed PM about the potential of sending troops in the case of a potential Chinese attack on Taiwan.

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

• Oriental Land shares dropped by 5.7%
• The department store chain tumbled by 11.3 percent
• The national carrier fell by 3.75%

"The China-Japan dispute over Taiwan and China's travel warning advising against visits to Japan brings near-term challenges for consumer-facing sectors.

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

GDP Contraction Details

Japan's gross domestic product fell by 0.4% in the July-September quarter, as manufacturers' exports were affected by tariffs levied by the United States this year.

Overseas shipments were a major driver of the decline, falling by 1.2% compared with the April-June quarter, and were 4.5% lower than a the same period last year.

Previously, the American government had threatened Japan with a new 25% tariff on its goods, which was later reduced to 15% when the two nations reached a trade agreement.

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

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

"The Japanese economic situation was strong in the first half of this year and today's GDP data showed that momentum is paused for now.

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

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

Business Agenda

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