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The Japanese economic system has shown a drop for the first time in six quarters, mainly caused by weakening exports because of recent US tariffs.

Group of Seven Economic Rankings

Japan stands as the first Group of Seven economy to disclose an economic contraction in the previous three-month period.

With the US still needing to release its gross domestic product data for the third quarter, the present G7 growth standings display:

• The French economy: +0.5% quarterly growth
• UK: +0.1%
• Canadian economy: +0.1% (provisional estimate)
• Germany: zero growth
• Italy: no growth
• Japan: -0.4%

Tourism Stocks Slump amid Political Rift with China

Alongside the GDP decline, Japan is dealing with an escalating political tension with China regarding Taiwan.

Shares in Japanese travel and retail firms have declined noticeably after China advised its citizens to avoid traveling to Japan.

This action by Chinese authorities heightened a political dispute that was initiated by comments from Tokyo's new PM about the possibility of deploying troops in the case of a hypothetical Chinese invasion on Taiwan.

The situation caused a wave of selling across Japanese tourism-related stocks.

• Oriental Land stock dropped by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier declined by 3.75%

"The ongoing tension over Taiwan and Beijing's travel warning discouraging travel to Japan introduces near-term challenges for retail and hospitality sectors.

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

GDP Contraction Breakdown

Japanese GDP dropped by 0.4 percent in the third quarter, as industrial exports were impacted by tariffs levied by the US recently.

Overseas shipments were a primary driver of the decline, falling by 1.2% compared with the April-June quarter, and were 4.5% lower than a the same period last year.

Previously, the US administration had threatened Japan with a new 25 percent tariff on its products, which was later lowered to 15 percent when the two nations reached a trade deal.

Consumer spending also declined, by 0.3% quarter-on-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 momentum is paused temporarily.

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

The US administration has lately recognized the effect of tariffs on Americans, reducing tariffs on imported food products including beef, tomatoes, coffee and bananas amid increasing concerns about increasing costs.

Economic Calendar

• 8am GMT: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August