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The Japanese economic system has experienced a drop for the first time in a year and a half, largely driven by declining exports as a result of newly imposed US tariffs.

Group of Seven Growth Leaderboard

The Japanese economy stands as the initial Group of Seven nation to disclose an output shrinkage in the latest quarter.

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

• France: +0.5% expansion
• UK: +0.1%
• Canadian economy: 0.1 percent (provisional estimate)
• German economy: 0%
• Italy: no growth
• Japanese economy: negative 0.4 percent

Travel Stocks Slump amid Diplomatic Dispute with Beijing

Alongside the economic contraction, Japan is facing an growing political dispute with China concerning Taiwan.

Stocks in Japanese tourism and retail businesses have dropped significantly after China recommended its residents to avoid traveling to Japan.

This move by Beijing escalated a diplomatic feud that was sparked by remarks from Tokyo's new PM about the potential of sending forces in the event of a hypothetical Chinese invasion on Taiwan.

The development caused a surge of selling across Japanese leisure shares.

• The Tokyo Disneyland operator shares fell by 5.7%
• The department store chain plummeted by 11.3%
• The national carrier fell by 3.75%

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

"Chinese visitors represent roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and hospitality particularly at risk."

Economic Contraction Details

Japan's gross domestic product declined by 0.4% in the July-September quarter, as industrial overseas shipments were affected by tariffs levied by the US this year.

Overseas shipments were a primary factor of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a year ago.

Earlier this year, the US administration had proposed Japan with a additional 25% tariff on its goods, which was later reduced to 15 percent when the two countries reached a trade agreement.

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

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

"The Japanese economic situation was strong in the first half of this year and today's GDP figures showed that growth is paused for now.

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

The US administration has lately recognized the effect of tariffs on US consumers, lowering tariffs on imported food products including beef, produce, coffee and bananas amid growing concerns about rising costs.

Business Agenda

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