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The Japanese economic system has experienced a decline for the first time in a year and a half, mainly driven by declining exports as a result of recent US tariffs.

G7 Growth Standings

Japan stands as the initial G7 country to disclose an economic contraction in the most recent three-month period.

As the US yet to release its GDP figures for the third quarter, the current G7 economic rankings show:

• The French economy: 0.5 percent expansion
• UK: 0.1 percent
• Canadian economy: 0.1 percent (preliminary figure)
• Germany: zero growth
• Italian economy: no growth
• Japanese economy: -0.4%

Travel Shares Decline amid Political Dispute with Beijing

Alongside the economic contraction, Japan is experiencing an growing political conflict with China concerning Taiwan.

Shares in Japanese travel and consumer firms have fallen sharply after China recommended its citizens to refrain from traveling to Japan.

This decision by Chinese authorities intensified a political dispute that was sparked by comments from Japan's new PM about the potential of deploying forces in the event of a potential Chinese attack on Taiwan.

The situation triggered a wave of sell-offs across Japan's tourism-related stocks.

• Oriental Land shares fell by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3 percent
• The national carrier fell by 3.75%

"The ongoing dispute over Taiwan and Beijing's advisory discouraging travel to Japan brings near-term challenges for consumer-facing sectors.

"Chinese visitors represent roughly 25% of Japan's inbound traffic, making department stores, luxury retail, and tourism services particularly vulnerable."

GDP Decline Breakdown

Japan's GDP dropped by 0.4% in the third quarter, as industrial exports were hit by tariffs imposed by the US this year.

Exports were a major factor of the decline, dropping 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% tariff on its goods, which was later reduced to 15 percent when the two nations reached a trade deal.

Consumer spending also fell, by 0.3% quarter-on-quarter.

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

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

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

The White House has recently acknowledged the effect of tariffs on US consumers, reducing tariffs on imported food products including meat, tomatoes, coffee and bananas amid growing concerns about increasing costs.

Economic Agenda

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