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The Japanese economic system has experienced a contraction for the initial time in six quarters, primarily driven by declining exports because of recent American trade duties.

Group of Seven Growth Rankings

The Japanese economy stands as the first Group of Seven country to report an output shrinkage in the previous three-month period.

With the United States yet to publish its GDP figures for the third quarter, the current G7 economic rankings show:

• The French economy: 0.5 percent expansion
• UK: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• Germany: zero growth
• Italian economy: 0%
• Japan: -0.4%

Travel Stocks Decline during Political Rift with China

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

Shares in Japanese travel and retail companies have fallen sharply after China advised its citizens to avoid visiting to Japan.

This action by Chinese authorities escalated a diplomatic feud that was initiated by statements from Japan's recently appointed PM about the potential of deploying forces in the event of a hypothetical Chinese invasion on Taiwan.

The development triggered a surge of selling across Japanese tourism-related shares.

• Oriental Land stock fell by 5.7%
• Isetan Mitsukoshi plummeted by 11.3%
• Japan Airlines declined by 3.75 percent

"The ongoing tension over Taiwan and China's travel warning discouraging travel to Japan creates near-term challenges for retail and hospitality sectors.

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

Economic Decline Details

Japan's GDP dropped by 0.4% in the July-September quarter, as manufacturers' exports were impacted by duties levied by the US recently.

Exports were a major driver of the contraction, dropping by 1.2 percent compared with the previous 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 goods, which was later reduced to 15% when the two countries reached a trade deal.

Consumer spending also declined, by 0.3% compared to the previous quarter.

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

"The Japanese economic situation was stable in the first half of this year and the latest GDP data showed that growth is halted temporarily.

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

The US administration has lately acknowledged the effect of tariffs on US consumers, lowering duties on imported food products including beef, tomatoes, beverages and bananas amid growing concerns about rising costs.

Business Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August