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The Japanese economic system has shown a contraction for the first time in a year and a half, primarily caused by falling exports due to newly imposed American trade duties.

Group of Seven Economic Rankings

Japan has become the first Group of Seven country to report an output shrinkage in the most recent quarter.

With the US still needing to publish its gross domestic product data for the third quarter, the current G7 growth rankings display:

• The French economy: 0.5 percent expansion
• United Kingdom: 0.1 percent
• Canada: +0.1% (provisional estimate)
• German economy: zero growth
• Italy: no growth
• Japan: -0.4%

Tourism Shares Decline amid Diplomatic Rift with Beijing

Alongside the GDP decline, Japan is dealing with an intensifying diplomatic dispute with China regarding Taiwan.

Stocks in Japanese travel and consumer companies have fallen sharply after China recommended its residents to avoid visiting to Japan.

This action by Beijing escalated a political dispute that was sparked by remarks from Tokyo's recently appointed PM about the possibility of deploying troops in the event of a hypothetical Chinese attack on Taiwan.

The development led to a surge of sell-offs across Japanese tourism-related stocks.

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

"The ongoing tension over Taiwan and China's advisory advising against visits to Japan creates near-term challenges for consumer-facing sectors.

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

Economic Decline Breakdown

Japan's gross domestic product fell by 0.4% in the July-September quarter, as manufacturers' exports were affected by tariffs imposed by the United States this year.

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

Earlier this year, the American government had proposed Japan with a additional 25 percent tariff on its goods, which was later lowered to 15 percent when the two nations concluded a trade agreement.

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

On an annualized basis, Japan's GDP contracted by 1.8% in the quarter through September.

"Japan's economy was stable in the first half of this year and the latest GDP data showed that growth 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 effect of tariffs on Americans, reducing tariffs on imported food products including meat, produce, beverages and fruits 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