The Japanese Economic Output Contracts while Exports Are Hit by US Tariffs
The Japanese economic system has experienced a drop for the initial time in six quarters, mainly driven by declining exports because of newly imposed US tariffs.
G7 Economic Rankings
The Japanese economy stands as the initial G7 economy to announce an output shrinkage in the previous three-month period.
As the United States still needing to release its GDP figures for the third quarter, the current Group of Seven growth rankings display:
- The French economy: +0.5% expansion
- United Kingdom: +0.1%
- Canada: 0.1 percent (preliminary figure)
- Germany: 0%
- Italy: 0%
- Japan: negative 0.4 percent
Travel Stocks Decline during Diplomatic Rift with China
In addition to the economic contraction, Japan is experiencing an escalating political tension with China regarding Taiwan.
Shares in Japan's tourism and consumer businesses have fallen sharply after China advised its citizens to avoid traveling to Japan.
This decision by Beijing escalated a political dispute that was initiated by remarks from Japan's recently appointed prime minister about the potential of sending troops in the case of a hypothetical Chinese attack on Taiwan.
The development triggered a surge of sell-offs across Japanese tourism-related stocks.
- Oriental Land shares dropped by 5.7%
- Isetan Mitsukoshi tumbled by 11.3%
- Japan Airlines declined by 3.75 percent
"The ongoing dispute over Taiwan and Beijing's travel warning discouraging travel to Japan brings near-term headwinds for retail and hospitality sectors.
"Chinese visitors account for roughly 25% of Japan's inbound traffic, making department stores, high-end shopping, and hospitality especially vulnerable."
Economic Contraction Details
Japanese gross domestic product fell by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were affected by duties imposed by the US this year.
Overseas shipments were a major factor of the decline, dropping by 1.2% compared with the previous quarter, and were 4.5% lower than a the same period last year.
Earlier this year, the US administration had proposed Japan with a additional 25% tariff on its goods, which was later lowered to 15% when the two countries reached a trade deal.
Private demand also declined, by 0.3 percent compared to the previous quarter.
On an annual basis, Japan's GDP contracted by 1.8 percent in the three months through September.
"Japan's economy was strong in the initial six months of this year and the latest GDP data showed that growth is halted temporarily.
I anticipate Japan's economy to be back on a gradual growth trend going forward."
The US administration has recently recognized the impact of tariffs on Americans, lowering duties on imported food products including meat, tomatoes, coffee and bananas amid increasing concerns about rising costs.
Business Calendar
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
