Japan's Economy Declines as Overseas Sales Face Impact by US Tariffs
Japan's economy has experienced a decline for the first time in six quarters, primarily driven by weakening exports because of recent US tariffs.
G7 Growth Standings
Japan stands as the first Group of Seven nation to announce an GDP decline in the previous quarter.
As the US yet to release its gross domestic product figures for the third quarter, the current Group of Seven economic rankings display:
- France: +0.5% expansion
- UK: +0.1%
- Canada: 0.1 percent (provisional estimate)
- Germany: 0%
- Italian economy: 0%
- Japanese economy: negative 0.4 percent
Travel Stocks Decline amid Diplomatic Dispute with China
Alongside the GDP decline, Japan is experiencing an growing diplomatic conflict with China regarding Taiwan.
Stocks in Japanese travel and consumer businesses have dropped noticeably after China recommended its residents to refrain from traveling to Japan.
This action by Beijing intensified a political dispute that was sparked by comments from Tokyo's new prime minister about the potential of deploying troops in the event of a hypothetical Chinese attack on Taiwan.
The situation caused a surge of sell-offs across Japan's tourism-related shares.
- Oriental Land stock fell by 5.7 percent
- Isetan Mitsukoshi plummeted by 11.3%
- Japan Airlines fell by 3.75 percent
"The China-Japan tension over Taiwan and Beijing's travel warning discouraging visits to Japan brings near-term headwinds for retail and hospitality sectors.
"Tourists from China represent roughly 25% of Japan's inbound traffic, making department stores, luxury retail, and tourism services especially at risk."
Economic Decline Breakdown
Japan's GDP fell by 0.4% in the third quarter, as manufacturers' overseas shipments were hit by tariffs imposed by the United States recently.
Exports were a primary driver of the decline, dropping by 1.2% compared with the April-June quarter, and were 4.5% lower than a the same period last year.
Previously, the American government had threatened Japan with a new 25% tariff on its products, which was later reduced to 15% when the two countries reached a trade deal.
Private demand also fell, by 0.3% compared to the previous quarter.
On an annual basis, Japan's real gross domestic product shrank by 1.8 percent in the three months through September.
"Japan's economy was solid in the first half of this year and the latest GDP data showed that momentum is halted for now.
I anticipate Japan's economy to be returning on a gradual growth trend going forward."
The White House has recently acknowledged the impact of tariffs on Americans, lowering duties on imported food products including beef, produce, beverages and bananas amid increasing concerns about rising costs.
Business Agenda
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
