The Japanese Economic Output Contracts as Exports Are Hit by American Trade Duties
Japan's economy has recorded a drop for the first time in six quarters, largely driven by falling overseas shipments because of recent US tariffs.
G7 Growth Rankings
Japan stands as the initial Group of Seven economy to announce an economic contraction in the latest three-month period.
With the US yet to publish its gross domestic product figures for the third quarter, the current G7 growth leaderboard show:
- The French economy: +0.5% quarterly growth
- UK: 0.1 percent
- Canadian economy: +0.1% (provisional estimate)
- Germany: 0%
- Italy: no growth
- Japanese economy: -0.4%
Travel Shares Slump amid Diplomatic Rift with China
In addition to the economic contraction, Japan is dealing with an growing diplomatic dispute with China regarding Taiwan.
Shares in Japan's travel and retail businesses have declined sharply after China advised its nationals to refrain from traveling to Japan.
This move by Beijing escalated a political dispute that was triggered by statements from Japan's recently appointed PM about the potential of deploying forces in the case of a hypothetical Chinese invasion on Taiwan.
The situation triggered a wave of sell-offs across Japanese leisure shares.
- Oriental Land shares dropped by 5.7%
- Isetan Mitsukoshi tumbled by 11.3 percent
- Japan Airlines fell by 3.75 percent
"The China-Japan dispute over Taiwan and China's advisory advising against visits to Japan introduces near-term headwinds for consumer-facing sectors.
"Tourists from China represent roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and hospitality particularly at risk."
Economic Contraction Details
Japanese GDP dropped by 0.4% in the July-September quarter, as industrial exports were affected by duties imposed by the US this year.
Overseas shipments were a major 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 American government had threatened Japan with a additional 25 percent tariff on its products, which was later reduced to 15 percent when the two countries reached a trade deal.
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% in the quarter through September.
"Japan's economy was solid in the first half of this year and the latest 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 recently acknowledged the impact of tariffs on Americans, lowering tariffs on food imports including meat, tomatoes, coffee and fruits amid growing concerns about increasing costs.
Business Calendar
- 8am GMT: Switzerland GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
