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The Japanese economic system has recorded a drop for the first time in six quarters, mainly caused by weakening overseas shipments as a result of newly imposed US trade duties.

G7 Growth Standings

Japan stands as the initial Group of Seven nation to disclose an GDP decline in the previous three-month period.

With the US still needing to release its GDP figures for the third quarter, the current Group of Seven economic rankings display:

• France: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canadian economy: 0.1 percent (provisional estimate)
• German economy: 0%
• Italian economy: 0%
• Japan: -0.4%

Travel Stocks Decline amid Political Rift with China

In addition to the economic contraction, Japan is experiencing an growing diplomatic tension with China concerning Taiwan.

Stocks in Japan's tourism and consumer businesses have declined significantly after China recommended its nationals to refrain from traveling to Japan.

This action by Chinese authorities heightened a political dispute that was triggered by statements from Japan's new prime minister about the potential of sending forces in the case of a potential Chinese invasion on Taiwan.

The situation triggered a surge of sell-offs across Japanese tourism-related shares.

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

"The ongoing tension over Taiwan and China's advisory advising against travel to Japan brings short-term challenges for consumer-facing sectors.

"Chinese visitors represent roughly 25 percent of Japan's inbound traffic, making retail outlets, high-end shopping, and hospitality especially vulnerable."

Economic Decline Breakdown

Japan's gross domestic product fell by 0.4% in the third quarter, as manufacturers' exports were hit by tariffs levied by the US this year.

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

Previously, the US administration had proposed Japan with a additional 25% tariff on its products, which was later reduced to 15% when the two countries concluded a trade deal.

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

On an annual basis, Japan's real gross domestic product shrank by 1.8% in the quarter through September.

"The Japanese economic situation was stable in the initial six months of this year and the latest GDP figures showed that growth is halted for now.

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

The US administration has recently recognized the impact of tariffs on Americans, lowering duties on imported food products including meat, produce, coffee and fruits amid growing concerns about rising costs.

Business Calendar

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• 15:00 Greenwich Mean Time: US construction spending data for August