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Japan's economy has shown a decline for the first time in a year and a half, mainly caused by falling overseas shipments because of recent American tariffs.

G7 Growth Standings

Japan has become the first G7 nation to announce an output shrinkage in the latest three-month period.

With the United States still needing to release its GDP figures for the third quarter, the current G7 economic standings display:

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

Tourism Stocks Decline during Diplomatic Dispute with Beijing

In addition to the GDP decline, Japan is facing an growing political dispute with China concerning Taiwan.

Stocks in Japan's travel and consumer businesses have fallen sharply after China urged its nationals to avoid traveling to Japan.

This action by Beijing intensified a diplomatic feud that was sparked by comments from Japan's recently appointed PM about the potential of deploying forces in the case of a potential Chinese invasion on Taiwan.

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

• Oriental Land shares fell by 5.7%
• The department store chain plummeted by 11.3 percent
• The national carrier fell by 3.75 percent

"The ongoing tension over Taiwan and China's advisory discouraging travel to Japan creates near-term challenges for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's international visitors, making retail outlets, high-end shopping, and tourism services particularly vulnerable."

GDP Decline Breakdown

Japanese GDP dropped by 0.4% in the third quarter, as industrial overseas shipments were hit by tariffs levied by the US recently.

Overseas shipments were a primary driver of the decline, dropping 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 proposed Japan with a additional 25 percent tariff on its products, which was later reduced to 15 percent when the two nations concluded a trade agreement.

Private demand also declined, by 0.3 percent quarter-on-quarter.

On an annual basis, Japan's GDP shrank by 1.8% in the quarter through September.

"The Japanese economic situation was stable in the first half of this year and today's GDP figures showed that growth is halted temporarily.

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

The US administration has recently acknowledged the effect of tariffs on US consumers, lowering tariffs on imported food products including meat, tomatoes, coffee and bananas amid increasing concerns about rising costs.

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