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Japan's economy has experienced a contraction for the first time in six quarters, largely driven by falling exports because of newly imposed US trade duties.

Group of Seven Economic Leaderboard

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

With the US yet to publish its gross domestic product data for the third quarter, the present G7 economic standings indicate:

• France: 0.5 percent quarterly growth
• United Kingdom: +0.1%
• Canadian economy: +0.1% (provisional estimate)
• German economy: zero growth
• Italian economy: no growth
• Japan: -0.4%

Tourism Stocks Slump during Political Dispute with China

Alongside the GDP decline, Japan is dealing with an growing political tension with China regarding Taiwan.

Shares in Japanese tourism and retail firms have fallen significantly after China recommended its residents to refrain from visiting to Japan.

This move by Beijing escalated a diplomatic feud that was sparked by comments from Tokyo's recently appointed prime minister about the potential of deploying forces in the case of a potential Chinese attack on Taiwan.

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

• The Tokyo Disneyland operator stock dropped by 5.7%
• The department store chain tumbled by 11.3%
• The national carrier declined by 3.75 percent

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

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

GDP Decline Details

Japan's GDP fell by 0.4 percent in the July-September quarter, as industrial exports were affected by tariffs levied by the US recently.

Exports were a key factor of the decline, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

Earlier this year, the US administration had threatened Japan with a additional 25% tariff on its products, which was later reduced to 15 percent when the two countries reached a trade deal.

Private demand also fell, by 0.3 percent compared to the previous quarter.

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

"The Japanese economic situation was solid in the initial six months of this year and today's GDP figures showed that growth is paused for now.

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

The US administration has recently acknowledged the impact of tariffs on US consumers, lowering duties on imported food products including meat, tomatoes, beverages and bananas amid growing concerns about increasing costs.

Economic Calendar

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