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Japan's economy has recorded a drop for the initial time in six quarters, primarily driven by weakening exports due to recent American trade duties.

Group of Seven Growth Rankings

The Japanese economy has become the initial Group of Seven nation to report an output shrinkage in the previous three-month period.

With the US still needing to release its GDP figures for the third quarter, the present Group of Seven growth leaderboard indicate:

• France: 0.5 percent expansion
• United Kingdom: +0.1%
• Canada: 0.1 percent (provisional estimate)
• Germany: 0%
• Italian economy: 0%
• Japanese economy: -0.4%

Tourism Stocks Slump during Diplomatic Rift with Beijing

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

Shares in Japan's tourism and retail businesses have declined significantly after China advised its citizens to avoid traveling to Japan.

This move by Chinese authorities escalated a diplomatic feud that was sparked by remarks from Japan's new prime minister about the possibility of sending forces in the event of a potential Chinese invasion on Taiwan.

The situation led to a wave of sell-offs across Japan's leisure stocks.

• The Tokyo Disneyland operator stock fell by 5.7%
• The department store chain plummeted by 11.3 percent
• The national carrier fell by 3.75 percent

"The China-Japan tension over Taiwan and Beijing's advisory advising against travel to Japan creates short-term difficulties for retail and hospitality sectors.

"Tourists from China represent roughly 25 percent of Japan's international visitors, making department stores, luxury retail, and tourism services particularly vulnerable."

GDP Contraction Details

Japanese GDP declined by 0.4% in the July-September quarter, as industrial exports were impacted by duties levied by the US this year.

Overseas shipments were a major factor of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a year ago.

Previously, the American government had threatened Japan with a additional 25 percent tariff on its goods, which was later reduced to 15% when the two nations concluded a trade deal.

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

On an annualized basis, Japan's GDP contracted by 1.8 percent in the three months through September.

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

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

The US administration has recently recognized the impact of tariffs on US consumers, lowering tariffs on food imports including beef, produce, beverages and bananas amid increasing concerns about increasing costs.

Economic Agenda

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