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Japan's economy has shown a decline for the initial time in six quarters, mainly driven by declining exports due to recent American trade duties.

G7 Economic Rankings

Japan has become the first G7 economy to disclose an economic contraction in the most recent quarter.

With the US yet to publish its GDP figures for the third quarter, the current Group of Seven growth leaderboard indicate:

• France: 0.5 percent expansion
• United Kingdom: +0.1%
• Canadian economy: +0.1% (provisional estimate)
• German economy: zero growth
• Italian economy: 0%
• Japanese economy: negative 0.4 percent

Travel Stocks Slump amid Political Dispute with Beijing

Alongside the GDP decline, Japan is facing an escalating diplomatic tension with China regarding Taiwan.

Shares in Japanese travel and consumer firms have dropped sharply after China recommended its residents to refrain from visiting to Japan.

This decision by Beijing intensified a diplomatic feud that was sparked by remarks from Tokyo's new prime minister about the possibility of deploying forces in the event of a potential Chinese invasion on Taiwan.

The situation triggered a surge of selling across Japan's leisure shares.

• The Tokyo Disneyland operator stock dropped by 5.7 percent
• The department store chain tumbled by 11.3%
• Japan Airlines fell by 3.75 percent

"The ongoing tension over Taiwan and China's travel warning advising against visits to Japan creates near-term headwinds for retail and hospitality sectors.

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making department stores, luxury retail, and hospitality especially vulnerable."

Economic Decline Breakdown

Japan's GDP dropped by 0.4% in the third quarter, as manufacturers' exports were hit by tariffs imposed by the US this year.

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

Previously, the American government had proposed Japan with a additional 25 percent tariff on its goods, which was later reduced to 15% when the two nations reached a trade agreement.

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

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

"The Japanese economic situation was solid in the first half of this year and the latest GDP data showed that momentum is paused for now.

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

The US administration has lately recognized the effect of tariffs on Americans, lowering duties on food imports including beef, produce, beverages and fruits amid growing concerns about rising costs.

Economic Calendar

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