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The Japanese economic system has experienced a contraction for the first time in six quarters, mainly caused by falling overseas shipments due to recent US trade duties.

G7 Economic Leaderboard

Japan stands as the first G7 nation to announce an GDP decline in the most recent quarter.

As the US still needing to release its gross domestic product figures for the third quarter, the current Group of Seven growth rankings indicate:

• France: 0.5 percent quarterly growth
• United Kingdom: +0.1%
• Canadian economy: +0.1% (preliminary figure)
• Germany: zero growth
• Italian economy: 0%
• Japan: -0.4%

Travel Stocks Slump during Diplomatic Dispute with Beijing

Alongside the economic contraction, Japan is facing an growing diplomatic tension with China concerning Taiwan.

Shares in Japan's tourism and retail companies have fallen noticeably after China recommended its citizens to refrain from traveling to Japan.

This action by Beijing escalated a political dispute that was initiated by statements from Japan's recently appointed prime minister about the potential of deploying troops in the case of a hypothetical Chinese invasion on Taiwan.

The development caused a wave of sell-offs across Japan's leisure stocks.

• The Tokyo Disneyland operator stock fell by 5.7%
• Isetan Mitsukoshi plummeted by 11.3 percent
• Japan Airlines fell by 3.75 percent

"The China-Japan tension over Taiwan and China's advisory discouraging visits to Japan brings short-term difficulties for retail and hospitality sectors.

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

GDP Contraction Details

Japanese gross domestic product dropped by 0.4 percent in the July-September quarter, as manufacturers' exports were hit by duties levied by the US this year.

Exports were a key factor of the contraction, dropping by 1.2 percent compared with the previous quarter, and were 4.5 percent 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 deal.

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% in the three months through September.

"The Japanese economic situation was stable in the initial six months of this year and today's GDP figures showed that growth is paused for now.

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

The US administration has recently recognized the effect of tariffs on US consumers, lowering tariffs on imported food products including meat, produce, coffee and bananas 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