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Japan's economy has experienced a drop for the initial time in a year and a half, primarily caused by weakening exports due to newly imposed American tariffs.

Group of Seven Economic Standings

Japan stands as the first Group of Seven economy to disclose an GDP decline in the latest quarter.

As the United States still needing to publish its GDP data for the third quarter, the current Group of Seven economic leaderboard display:

• France: 0.5 percent expansion
• United Kingdom: +0.1%
• Canadian economy: +0.1% (provisional estimate)
• Germany: zero growth
• Italian economy: no growth
• Japan: -0.4%

Travel Shares Slump during Political Rift with Beijing

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

Shares in Japan's travel and consumer businesses have dropped significantly after China advised its citizens to refrain from visiting to Japan.

This move by Chinese authorities heightened a diplomatic feud that was initiated by statements from Japan's new PM about the possibility of sending forces in the case of a hypothetical Chinese invasion on Taiwan.

The situation triggered a wave of sell-offs across Japan's leisure shares.

• The Tokyo Disneyland operator stock fell by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3%
• The national carrier declined by 3.75 percent

"The China-Japan tension over Taiwan and Beijing's advisory discouraging visits to Japan creates near-term headwinds for retail and hospitality sectors.

"Chinese visitors represent roughly 25% of Japan's inbound traffic, making retail outlets, high-end shopping, and tourism services particularly vulnerable."

Economic Contraction Breakdown

Japan's GDP declined by 0.4% in the July-September quarter, as manufacturers' exports were affected by tariffs levied by the US recently.

Exports were a major factor of the decline, dropping by 1.2% compared with the April-June quarter, and were 4.5% lower than a year ago.

Previously, the US administration had proposed Japan with a new 25% tariff on its goods, which was later lowered to 15 percent when the two nations reached a trade agreement.

Private demand also declined, by 0.3 percent quarter-on-quarter.

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

"Japan's economy was stable in the initial six months of this year and the latest GDP figures showed that momentum is paused for now.

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

The White House has lately recognized the impact of tariffs on Americans, lowering tariffs on food imports including beef, produce, coffee and fruits amid growing concerns about rising costs.

Economic Calendar

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August