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Japan's economy has experienced a contraction for the initial time in six quarters, primarily caused by weakening exports due to recent American trade duties.

G7 Growth Rankings

The Japanese economy has become the first Group of Seven economy to announce an output shrinkage in the most recent quarter.

With the United States still needing to publish its GDP data for the third quarter, the present G7 growth standings indicate:

• France: 0.5 percent expansion
• UK: +0.1%
• Canada: +0.1% (preliminary figure)
• Germany: 0%
• Italian economy: 0%
• Japanese economy: negative 0.4 percent

Travel Shares Decline amid Political Rift with Beijing

Alongside the GDP decline, Japan is experiencing an escalating political tension with China concerning Taiwan.

Shares in Japan's tourism and retail businesses have declined sharply after China recommended its residents to avoid visiting to Japan.

This decision by Chinese authorities intensified a diplomatic feud that was initiated by comments from Tokyo's recently appointed prime minister about the possibility of deploying troops in the event of a potential Chinese invasion on Taiwan.

The situation triggered a wave of selling across Japanese leisure shares.

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

"The China-Japan dispute over Taiwan and China's travel warning advising against visits to Japan creates near-term difficulties for consumer-facing sectors.

"Tourists from China account for roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and hospitality particularly vulnerable."

GDP Contraction Breakdown

Japanese gross domestic product fell by 0.4% in the July-September quarter, as manufacturers' exports were hit by duties levied by the US this year.

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

Earlier this year, the American government had threatened Japan with a additional 25 percent tariff on its goods, which was later lowered to 15 percent when the two nations reached a trade deal.

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

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

"The Japanese economic situation was strong in the initial six months of this year and the latest GDP figures showed that growth is paused temporarily.

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

The US administration has recently acknowledged the effect of tariffs on US consumers, lowering tariffs on imported food products including meat, produce, beverages and fruits amid increasing concerns about increasing costs.

Economic Calendar

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