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The Japanese economic system has recorded a contraction for the first time in a year and a half, mainly driven by weakening overseas shipments as a result of newly imposed American tariffs.

G7 Growth Rankings

Japan stands as the first Group of Seven country to report an output shrinkage in the most recent three-month period.

As the United States yet to release its GDP data for the third quarter, the present Group of Seven economic rankings show:

• The French economy: 0.5 percent expansion
• UK: 0.1 percent
• Canadian economy: +0.1% (preliminary figure)
• Germany: zero growth
• Italy: no growth
• Japan: negative 0.4 percent

Tourism Shares Decline amid Diplomatic Dispute with Beijing

In addition to the GDP decline, Japan is experiencing an escalating diplomatic tension with China concerning Taiwan.

Shares in Japanese tourism and consumer firms have dropped significantly after China urged its nationals to avoid visiting to Japan.

This move by Chinese authorities heightened a political dispute that was triggered by remarks from Tokyo's recently appointed prime minister about the potential of sending forces in the case of a hypothetical Chinese invasion on Taiwan.

The development led to a surge of sell-offs across Japan's tourism-related shares.

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

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

"Tourists from China represent roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and tourism services particularly at risk."

GDP Contraction Details

Japanese gross domestic product dropped by 0.4 percent in the July-September quarter, as industrial overseas shipments were impacted by duties imposed by the US recently.

Exports were a primary factor of the decline, dropping by 1.2% compared with the previous quarter, and were 4.5 percent lower than a year ago.

Previously, the American government had threatened Japan with a new 25 percent tariff on its products, which was later reduced to 15% when the two nations reached a trade agreement.

Private demand 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 percent in the quarter through September.

"The Japanese economic situation was strong in the first half of this year and today's GDP figures showed that momentum is paused for now.

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

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

Business Agenda

• 8am GMT: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August