Japan's Economy Shrinks as Exports Face Impact by American Tariffs
Japan's economy has shown a drop for the initial time in six quarters, largely driven by weakening overseas shipments due to newly imposed American trade duties.
G7 Growth Leaderboard
The Japanese economy stands as the first Group of Seven country to report an GDP decline in the latest quarter.
As the US still needing to publish its GDP figures for the third quarter, the present G7 growth standings show:
- France: +0.5% expansion
- UK: 0.1 percent
- Canadian economy: 0.1 percent (provisional estimate)
- German economy: zero growth
- Italy: no growth
- Japan: -0.4%
Tourism Shares Decline during Political Dispute with Beijing
In addition to the GDP decline, Japan is experiencing an escalating diplomatic dispute with China regarding Taiwan.
Stocks in Japan's tourism and consumer businesses have declined significantly after China recommended its residents to refrain from traveling to Japan.
This move by Chinese authorities heightened a diplomatic feud that was sparked by comments from Japan's new prime minister about the potential of deploying troops in the case of a hypothetical Chinese attack on Taiwan.
The situation led to a wave of selling across Japanese leisure stocks.
- The Tokyo Disneyland operator shares dropped by 5.7 percent
- Isetan Mitsukoshi plummeted by 11.3 percent
- Japan Airlines fell by 3.75%
"The ongoing dispute over Taiwan and China's travel warning discouraging travel to Japan brings near-term headwinds for consumer-facing sectors.
"Tourists from China account for roughly 25 percent of Japan's international visitors, making department stores, luxury retail, and hospitality especially vulnerable."
Economic Contraction Details
Japanese gross domestic product dropped by 0.4 percent in the third quarter, as manufacturers' exports were impacted by duties imposed by the United States recently.
Overseas shipments were a primary factor of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a the same period last year.
Previously, the US administration had proposed Japan with a new 25% tariff on its goods, which was later reduced to 15% when the two countries concluded a trade deal.
Consumer spending also fell, by 0.3% quarter-on-quarter.
On an annualized basis, Japan's real gross domestic product shrank by 1.8 percent in the quarter through September.
"The Japanese economic situation was strong in the first half of this year and the latest GDP figures showed that growth is halted temporarily.
I expect Japan's economy to be returning on a gradual growth trend going forward."
The White House has recently recognized the effect of tariffs on US consumers, reducing duties on imported food products including meat, tomatoes, coffee and fruits amid growing concerns about rising costs.
Business Calendar
- 8am GMT: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August