The Japanese Economy Contracts while Exports Face Impact by US Tariffs

Japan's economy has shown a drop for the initial time in six quarters, primarily caused by falling exports due to recent US trade duties.

G7 Growth Standings

The Japanese economy has become the initial Group of Seven nation to disclose an output shrinkage in the most recent three-month period.

As the US still needing to release its GDP figures for the third quarter, the present Group of Seven economic standings indicate:

• The French economy: 0.5 percent expansion
• UK: 0.1 percent
• Canadian economy: +0.1% (provisional estimate)
• German economy: zero growth
• Italy: 0%
• Japanese economy: -0.4%

Tourism Shares Slump amid Political Rift with Beijing

Alongside the economic contraction, Japan is dealing with an growing diplomatic dispute with China regarding Taiwan.

Stocks in Japan's tourism and retail businesses have declined sharply after China advised its nationals to avoid traveling to Japan.

This move by Chinese authorities escalated a diplomatic feud that was initiated by statements from Japan's new PM about the possibility of deploying troops in the event of a hypothetical Chinese invasion on Taiwan.

The development triggered a wave of sell-offs across Japan's tourism-related shares.

• The Tokyo Disneyland operator shares dropped by 5.7%
• Isetan Mitsukoshi tumbled by 11.3%
• The national carrier fell by 3.75 percent

"The China-Japan dispute over Taiwan and China's travel warning advising against visits to Japan creates near-term headwinds for consumer-facing sectors.

"Chinese visitors represent roughly 25 percent of Japan's international visitors, making retail outlets, high-end shopping, and tourism services especially at risk."

GDP Contraction Breakdown

Japanese GDP fell by 0.4 percent in the July-September quarter, as manufacturers' exports were impacted by tariffs levied by the United States recently.

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

Previously, the American government had threatened Japan with a additional 25% tariff on its products, which was later lowered to 15 percent when the two nations concluded a trade agreement.

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

On an annual basis, Japan's GDP contracted by 1.8% in the quarter through September.

"Japan's economy was stable in the initial six months of this year and today's GDP data showed that growth is halted for now.

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

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

Economic Agenda

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