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Japan's economy has shown a contraction for the first time in six quarters, largely driven by declining exports due to newly imposed American trade duties.

Group of Seven Economic Standings

Japan stands as the initial G7 nation to report an output shrinkage in the previous quarter.

As the United States still needing to release its GDP data for the third quarter, the current G7 growth standings indicate:

• France: +0.5% expansion
• United Kingdom: 0.1 percent
• Canada: +0.1% (provisional estimate)
• Germany: zero growth
• Italian economy: 0%
• Japan: negative 0.4 percent

Tourism Stocks Decline amid Diplomatic Rift with China

In addition to the economic contraction, Japan is experiencing an growing diplomatic conflict with China regarding Taiwan.

Stocks in Japanese tourism and retail firms have declined significantly after China recommended its nationals to avoid traveling to Japan.

This decision by Beijing heightened a diplomatic feud that was sparked by remarks from Tokyo's recently appointed prime minister about the potential of deploying troops in the case of a hypothetical Chinese invasion on Taiwan.

The development triggered a wave of selling across Japan's tourism-related stocks.

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

"The ongoing dispute over Taiwan and Beijing's advisory advising against travel to Japan brings short-term difficulties for consumer-facing sectors.

"Tourists from China represent roughly 25 percent of Japan's international visitors, making retail outlets, high-end shopping, and hospitality especially vulnerable."

Economic Contraction Breakdown

Japanese gross domestic product fell by 0.4 percent in the July-September quarter, as manufacturers' exports were affected by duties imposed by the United States this year.

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

Previously, the US administration had proposed Japan with a additional 25% tariff on its products, which was later lowered to 15% when the two countries reached a trade deal.

Consumer spending also declined, by 0.3% quarter-on-quarter.

On an annualized basis, Japan's real gross domestic product 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 paused temporarily.

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

The US administration has lately recognized the impact of tariffs on US consumers, lowering tariffs on food imports including beef, produce, beverages and fruits amid increasing concerns about increasing costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August