The Japanese Economic Output Contracts as Overseas Sales Suffer by US Tariffs

Japan's economy has recorded a decline for the initial time in a year and a half, largely caused by falling overseas shipments due to newly imposed American tariffs.

G7 Economic Standings

The Japanese economy has become the first Group of Seven country to announce an output shrinkage in the latest three-month period.

With the United States yet to release its gross domestic product data for the third quarter, the present Group of Seven economic leaderboard show:

• The French economy: 0.5 percent quarterly growth
• UK: 0.1 percent
• Canada: +0.1% (provisional estimate)
• German economy: 0%
• Italian economy: no growth
• Japan: -0.4%

Tourism Stocks Slump during Diplomatic Dispute with China

In addition to the GDP decline, Japan is dealing with an escalating diplomatic conflict with China regarding Taiwan.

Stocks in Japanese tourism and consumer businesses have dropped significantly after China recommended its residents to avoid traveling to Japan.

This move by Beijing heightened a political dispute that was initiated by comments from Tokyo's new PM about the possibility of sending forces in the event of a hypothetical Chinese invasion on Taiwan.

The situation triggered a surge of selling across Japanese leisure shares.

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

"The ongoing dispute over Taiwan and Beijing's advisory discouraging visits to Japan brings short-term challenges for consumer-facing sectors.

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

GDP Decline Details

Japanese GDP fell by 0.4 percent in the third quarter, as industrial overseas shipments were impacted by tariffs levied by the US recently.

Exports were a major factor of the decline, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

Earlier this year, the US administration had threatened Japan with a new 25% tariff on its goods, which was later lowered to 15% when the two countries concluded a trade agreement.

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

On an annual basis, Japan's GDP contracted by 1.8 percent in the quarter 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 halted temporarily.

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

The White House has recently recognized the effect of tariffs on Americans, reducing duties on imported food products including meat, produce, beverages and bananas amid increasing concerns about increasing costs.

Business Agenda

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