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Japan's economy has experienced a drop for the first time in six quarters, largely driven by declining exports because of recent US tariffs.

G7 Economic Rankings

The Japanese economy stands as the initial Group of Seven country to disclose an output shrinkage in the previous three-month period.

With the US yet to release its GDP data for the third quarter, the current G7 growth leaderboard display:

• The French economy: 0.5 percent expansion
• United Kingdom: +0.1%
• Canadian economy: +0.1% (provisional estimate)
• Germany: 0%
• Italy: 0%
• Japanese economy: -0.4%

Travel Stocks Slump during Diplomatic Dispute with Beijing

In addition to the economic contraction, Japan is dealing with an intensifying political conflict with China concerning Taiwan.

Stocks in Japan's tourism and retail firms have fallen noticeably after China urged its residents to refrain from visiting to Japan.

This action by Chinese authorities intensified a political dispute that was initiated by statements from Japan's recently appointed PM about the potential of deploying forces in the event of a potential Chinese invasion on Taiwan.

The situation triggered a wave of sell-offs across Japanese leisure stocks.

• Oriental Land stock fell by 5.7%
• Isetan Mitsukoshi tumbled by 11.3%
• Japan Airlines fell by 3.75 percent

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

"Tourists from China represent roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and tourism services especially at risk."

Economic Contraction Details

Japan's GDP declined by 0.4 percent in the July-September quarter, as industrial overseas shipments were impacted by duties imposed by the United States this year.

Exports were a key driver of the decline, falling by 1.2 percent compared with the April-June quarter, and were 4.5% lower than a year ago.

Earlier this year, the US administration had proposed Japan with a additional 25 percent tariff on its goods, which was later reduced to 15 percent when the two countries concluded a trade agreement.

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

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

"The Japanese economic situation was strong in the initial six months of this year and today's GDP figures showed that growth is halted temporarily.

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

The White House has lately acknowledged the effect of tariffs on US consumers, reducing duties on imported food products including meat, tomatoes, beverages and fruits amid increasing concerns about rising costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August