The Japanese Economy Contracts while Overseas Sales Suffer by US Trade Duties
Japan's economy has recorded a drop for the initial time in six quarters, primarily driven by weakening overseas shipments due to newly imposed American trade duties.
G7 Economic Leaderboard
Japan has become the initial G7 country to disclose an GDP decline in the latest quarter.
As the US still needing to publish its GDP data for the third quarter, the current G7 growth leaderboard show:
- The French economy: +0.5% expansion
- UK: +0.1%
- Canada: +0.1% (preliminary figure)
- German economy: zero growth
- Italy: 0%
- Japanese economy: negative 0.4 percent
Travel Stocks Decline during Diplomatic Dispute with China
In addition to the GDP decline, Japan is facing an intensifying political conflict with China regarding Taiwan.
Shares in Japan's tourism and retail companies have fallen significantly after China urged its citizens to refrain from visiting to Japan.
This decision by Beijing heightened a political dispute that was initiated by remarks from Japan's new prime minister about the potential of sending forces in the event of a hypothetical Chinese attack on Taiwan.
The situation caused a wave of selling across Japanese leisure stocks.
- Oriental Land shares fell by 5.7%
- The department store chain tumbled by 11.3 percent
- Japan Airlines fell by 3.75%
"The China-Japan tension over Taiwan and Beijing's advisory discouraging visits to Japan creates short-term difficulties for retail and hospitality sectors.
"Tourists from China account for roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and hospitality particularly vulnerable."
GDP Contraction Breakdown
Japanese GDP declined by 0.4 percent in the July-September quarter, as industrial overseas shipments were hit by duties imposed by the United States this year.
Overseas shipments were a primary factor of the contraction, 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 American government had threatened 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 fell, by 0.3% quarter-on-quarter.
On an annual basis, Japan's GDP shrank by 1.8 percent in the quarter through September.
"The Japanese economic situation was stable in the initial six months of this year and the latest GDP data showed that momentum is paused for now.
I expect Japan's economy to be back on a moderate growth trend going forward."
The White House has recently recognized the impact of tariffs on Americans, reducing duties on imported food products including meat, produce, beverages and bananas amid growing concerns about increasing costs.
Economic Calendar
- 8am GMT: Switzerland GDP report for Q3
- 3pm GMT: US construction spending data for August
