The Japanese Economic Output Declines while Overseas Sales Suffer by American Trade Duties
The Japanese economic system has shown a contraction for the first time in six quarters, largely driven by falling overseas shipments because of newly imposed American tariffs.
G7 Growth Standings
The Japanese economy has become the first Group of Seven country to report an economic contraction in the latest three-month period.
As the US still needing to release its GDP figures for the third quarter, the present G7 growth standings display:
- The French economy: +0.5% expansion
- United Kingdom: 0.1 percent
- Canadian economy: 0.1 percent (preliminary figure)
- Germany: 0%
- Italian economy: 0%
- Japan: negative 0.4 percent
Tourism Stocks Decline during Diplomatic Rift with China
In addition to the GDP decline, Japan is dealing with an growing diplomatic tension with China concerning Taiwan.
Shares in Japan's tourism and retail firms have declined significantly after China advised its nationals to avoid visiting to Japan.
This move by Beijing heightened a political dispute that was triggered by comments from Tokyo's recently appointed prime minister about the possibility of deploying forces in the event of a hypothetical Chinese invasion on Taiwan.
The development led to a wave of selling across Japanese tourism-related stocks.
- Oriental Land shares fell by 5.7 percent
- The department store chain tumbled by 11.3%
- The national carrier fell by 3.75 percent
"The ongoing tension over Taiwan and China's travel warning discouraging visits to Japan creates near-term headwinds for retail and hospitality sectors.
"Chinese visitors represent roughly 25% of Japan's international visitors, making department stores, luxury retail, and hospitality especially at risk."
GDP Contraction Breakdown
Japanese GDP dropped by 0.4 percent in the third quarter, as manufacturers' exports were hit by tariffs imposed by the US recently.
Exports were a primary driver of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a year ago.
Earlier this year, the American government had threatened Japan with a additional 25 percent tariff on its goods, which was later lowered to 15 percent when the two countries reached a trade agreement.
Private demand also declined, by 0.3% 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 strong in the initial six months of this year and the latest GDP figures showed that growth is paused for now.
I anticipate Japan's economy to be back on a gradual recovery trend going forward."
The US administration has recently acknowledged the effect of tariffs on US consumers, lowering duties on imported food products including beef, produce, beverages and fruits amid growing concerns about rising costs.
Economic Calendar
- 08:00 Greenwich Mean Time: Swiss GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
