The Japanese Economic Output Contracts while Exports Are Hit by American Tariffs
The Japanese economic system has experienced a contraction for the first time in six quarters, mainly caused by falling exports as a result of newly imposed US tariffs.
Group of Seven Economic Standings
The Japanese economy stands as the initial Group of Seven economy to report an economic contraction in the previous quarter.
With the United States yet to release its GDP data for the third quarter, the present Group of Seven growth leaderboard show:
- The French economy: +0.5% quarterly growth
- United Kingdom: +0.1%
- Canada: 0.1 percent (preliminary figure)
- Germany: 0%
- Italy: 0%
- Japan: -0.4%
Travel Shares Decline during Political Rift with China
In addition to the GDP decline, Japan is dealing with an growing diplomatic conflict with China regarding Taiwan.
Stocks in Japan's tourism and consumer businesses have declined significantly after China urged its nationals to avoid visiting to Japan.
This move by Beijing escalated a political dispute that was initiated by comments from Tokyo's new prime minister about the potential of sending forces in the case of a potential Chinese invasion on Taiwan.
The situation triggered a surge of selling across Japanese tourism-related stocks.
- Oriental Land stock dropped by 5.7 percent
- Isetan Mitsukoshi tumbled by 11.3 percent
- Japan Airlines declined by 3.75 percent
"The ongoing tension over Taiwan and Beijing's travel warning advising against visits to Japan brings near-term difficulties for consumer-facing sectors.
"Chinese visitors account for roughly 25% of Japan's inbound traffic, making department stores, high-end shopping, and tourism services particularly vulnerable."
GDP Decline Details
Japanese gross domestic product fell by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were hit by tariffs levied by the United States this year.
Exports were a primary driver of the contraction, dropping by 1.2 percent compared with the April-June quarter, and were 4.5% lower than a year ago.
Earlier this year, the American government had proposed Japan with a additional 25% tariff on its products, which was later reduced to 15% when the two nations reached a trade agreement.
Private demand also fell, by 0.3% compared to the previous quarter.
On an annualized basis, Japan's GDP contracted by 1.8 percent in the three months through September.
"Japan's economy was solid in the first half of this year and the latest GDP figures showed that growth is paused temporarily.
I expect Japan's economy to be back on a gradual recovery trend going forward."
The US administration has recently acknowledged the impact of tariffs on Americans, lowering duties on food imports including meat, tomatoes, coffee and fruits amid growing concerns about increasing costs.
Economic Calendar
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 3pm GMT: US construction spending data for August
