The Japanese Economy Shrinks as Overseas Sales Suffer by US Trade Duties

The Japanese economic system has recorded a decline for the first time in a year and a half, primarily driven by declining overseas shipments as a result of newly imposed US trade duties.

G7 Growth Rankings

Japan has become the first Group of Seven country to announce an output shrinkage in the previous quarter.

As the United States still needing to publish its GDP figures for the third quarter, the present Group of Seven growth rankings show:

• France: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canada: +0.1% (preliminary figure)
• German economy: 0%
• Italian economy: no growth
• Japan: negative 0.4 percent

Tourism Shares Decline during Diplomatic Rift with China

In addition to the economic contraction, Japan is facing an intensifying political tension with China regarding Taiwan.

Shares in Japanese travel and consumer firms have declined noticeably after China advised its nationals to refrain from visiting to Japan.

This action by Chinese authorities intensified a diplomatic feud that was triggered by remarks from Tokyo's recently appointed PM about the potential of sending troops in the case of a hypothetical Chinese attack on Taiwan.

The situation triggered a wave of selling across Japanese tourism-related shares.

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

"The ongoing tension over Taiwan and Beijing's advisory discouraging travel to Japan introduces near-term headwinds for consumer-facing sectors.

"Tourists from China account for roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services particularly at risk."

GDP Contraction Breakdown

Japanese gross domestic product fell by 0.4% in the July-September quarter, as industrial exports were impacted by tariffs imposed by the US this year.

Overseas shipments were a key factor of the decline, dropping by 1.2 percent compared with the April-June quarter, and were 4.5 percent lower than a the same period last year.

Earlier this year, the American government had proposed Japan with a additional 25% tariff on its goods, which was later lowered to 15% when the two nations reached a trade deal.

Consumer spending also fell, by 0.3 percent compared to the previous quarter.

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

"Japan's economy 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 returning on a gradual growth trend going forward."

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

Economic Agenda

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