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Japan's economy has experienced a drop for the initial time in a year and a half, largely caused by declining overseas shipments because of newly imposed US trade duties.

G7 Growth Leaderboard

The Japanese economy has become the initial G7 economy to report an GDP decline in the most recent three-month period.

With the United States yet to publish its GDP data for the third quarter, the current Group of Seven economic rankings display:

• The French economy: 0.5 percent quarterly growth
• United Kingdom: +0.1%
• Canadian economy: +0.1% (provisional estimate)
• German economy: 0%
• Italy: no growth
• Japanese economy: -0.4%

Travel Stocks Slump amid Political Dispute with Beijing

In addition to the economic contraction, Japan is facing an intensifying political conflict with China concerning Taiwan.

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

This action by Beijing escalated a political dispute that was sparked by remarks from Tokyo's new prime minister about the possibility of deploying troops in the event of a hypothetical Chinese invasion on Taiwan.

The situation led to a surge of sell-offs across Japanese leisure shares.

• The Tokyo Disneyland operator shares fell by 5.7 percent
• The department store chain plummeted by 11.3%
• Japan Airlines fell by 3.75 percent

"The China-Japan dispute over Taiwan and Beijing's travel warning advising against travel to Japan creates short-term headwinds for consumer-facing sectors.

"Tourists from China account for roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services especially vulnerable."

GDP Contraction Breakdown

Japanese gross domestic product fell by 0.4 percent in the July-September quarter, as industrial overseas shipments were hit by tariffs imposed by the United States recently.

Overseas shipments were a key factor of the contraction, 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 goods, which was later reduced to 15 percent when the two countries reached a trade agreement.

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% in the quarter through September.

"Japan's economy was stable in the initial six months of this year and the latest GDP figures showed that growth is paused for now.

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

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

Business Calendar

• 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August