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Japan's economy has experienced a decline for the initial time in a year and a half, primarily caused by declining exports due to newly imposed American tariffs.

Group of Seven Economic Leaderboard

Japan stands as the initial G7 economy to announce an output shrinkage in the previous three-month period.

With the US still needing to release its GDP figures for the third quarter, the current G7 economic leaderboard indicate:

• The French economy: 0.5 percent expansion
• United Kingdom: +0.1%
• Canadian economy: 0.1 percent (provisional estimate)
• German economy: 0%
• Italy: no growth
• Japan: -0.4%

Travel Shares Decline amid Diplomatic Dispute with China

Alongside the GDP decline, Japan is facing an escalating diplomatic tension with China regarding Taiwan.

Shares in Japan's travel and consumer businesses have dropped noticeably after China urged its citizens to refrain from traveling to Japan.

This action by Chinese authorities intensified a political dispute that was sparked by remarks from Tokyo's recently appointed prime minister about the potential of sending forces in the case of a potential Chinese attack on Taiwan.

The situation caused a surge of selling across Japan's tourism-related stocks.

• The Tokyo Disneyland operator stock dropped by 5.7 percent
• The department store chain tumbled by 11.3%
• Japan Airlines fell by 3.75%

"The ongoing dispute over Taiwan and China's travel warning discouraging visits to Japan creates short-term challenges for consumer-facing sectors.

"Chinese visitors account for roughly 25 percent of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services especially vulnerable."

Economic Contraction Details

Japanese gross domestic product fell by 0.4 percent in the July-September quarter, as industrial overseas shipments were hit by tariffs imposed by the US this year.

Exports were a major driver of the contraction, dropping by 1.2% compared with the previous quarter, and were 4.5 percent lower than a year ago.

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

Private demand also fell, by 0.3 percent quarter-on-quarter.

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

"Japan's economy was solid in the initial six months of this year and the latest GDP data showed that momentum is paused for now.

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

The White House has recently recognized the impact of tariffs on US consumers, lowering tariffs on imported food products including meat, produce, beverages and bananas amid growing concerns about rising costs.

Business Agenda

• 8am GMT: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August