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The Japanese economic system has recorded a contraction for the first time in six quarters, primarily driven by declining exports as a result of newly imposed US trade duties.

Group of Seven Economic Standings

The Japanese economy has become the first Group of Seven economy to report an GDP decline in the latest three-month period.

As the US yet to release its GDP data for the third quarter, the current Group of Seven growth rankings display:

• France: 0.5 percent quarterly growth
• United Kingdom: +0.1%
• Canadian economy: +0.1% (preliminary figure)
• Germany: 0%
• Italian economy: 0%
• Japan: -0.4%

Travel Stocks Decline during Diplomatic Dispute with Beijing

Alongside the economic contraction, Japan is dealing with an growing diplomatic conflict with China regarding Taiwan.

Stocks in Japanese tourism and consumer firms have fallen significantly after China advised its nationals to avoid traveling to Japan.

This decision by Beijing escalated a political dispute that was initiated by remarks from Tokyo's recently appointed prime minister about the potential of sending troops in the case of a hypothetical Chinese attack on Taiwan.

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

• The Tokyo Disneyland operator shares fell by 5.7%
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier declined by 3.75 percent

"The ongoing tension over Taiwan and Beijing's advisory advising against travel to Japan creates short-term headwinds for consumer-facing sectors.

"Chinese visitors represent roughly 25% of Japan's international visitors, making department stores, luxury retail, and tourism services particularly at risk."

Economic Decline Breakdown

Japanese gross domestic product fell by 0.4% in the third quarter, as industrial overseas shipments were affected by duties imposed by the United States recently.

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

Previously, the American government had proposed Japan with a additional 25 percent tariff on its products, which was later lowered 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 annualized basis, Japan's real gross domestic product contracted by 1.8 percent in the quarter through September.

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

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

The White House has lately recognized the effect of tariffs on US consumers, reducing duties on food imports including meat, produce, beverages and fruits amid growing concerns about rising costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August