The Japanese Economic Output Declines as Overseas Sales Suffer by US Tariffs

Japan's economy has experienced a decline for the initial time in a year and a half, mainly caused by falling overseas shipments because of newly imposed American trade duties.

G7 Growth Standings

Japan has become the initial Group of Seven country to report an output shrinkage in the previous three-month period.

With the United States yet to publish its gross domestic product figures for the third quarter, the current Group of Seven growth rankings show:

• The French economy: 0.5 percent quarterly growth
• UK: +0.1%
• Canada: 0.1 percent (preliminary figure)
• German economy: 0%
• Italy: no growth
• Japan: negative 0.4 percent

Travel Shares Slump during Political Dispute with Beijing

Alongside the economic contraction, Japan is dealing with an intensifying political dispute with China concerning Taiwan.

Shares in Japanese tourism and retail firms have declined sharply after China urged its citizens to refrain from visiting to Japan.

This action by Beijing intensified a diplomatic feud that was initiated by statements from Tokyo's new prime minister about the possibility of sending troops in the event of a potential Chinese attack on Taiwan.

The situation led to a surge of selling across Japan's leisure stocks.

• The Tokyo Disneyland operator shares dropped by 5.7%
• Isetan Mitsukoshi tumbled by 11.3%
• Japan Airlines declined by 3.75 percent

"The China-Japan dispute over Taiwan and Beijing's travel warning advising against travel to Japan introduces short-term challenges for retail and hospitality sectors.

"Chinese visitors account for roughly 25% of Japan's international visitors, making department stores, high-end shopping, and hospitality particularly at risk."

Economic Contraction Breakdown

Japan's GDP dropped by 0.4% in the July-September quarter, as manufacturers' exports were hit by duties levied by the United States this year.

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

Previously, the American government had threatened Japan with a new 25 percent tariff on its goods, which was later reduced to 15% when the two countries reached a trade deal.

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

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

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

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

The US administration has lately recognized the impact of tariffs on US consumers, reducing tariffs on imported food products including beef, tomatoes, coffee and fruits amid growing concerns about increasing costs.

Business Calendar

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