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The Japanese economic system has recorded a contraction for the initial time in six quarters, largely driven by declining overseas shipments because of newly imposed American trade duties.

Group of Seven Economic Rankings

The Japanese economy has become the first Group of Seven nation to disclose an output shrinkage in the latest three-month period.

With the US yet to publish its gross domestic product figures for the third quarter, the current G7 economic rankings indicate:

• France: 0.5 percent quarterly growth
• UK: +0.1%
• Canadian economy: 0.1 percent (provisional estimate)
• Germany: zero growth
• Italy: no growth
• Japan: -0.4%

Tourism Shares Slump amid Diplomatic Rift with Beijing

In addition to the GDP decline, Japan is experiencing an escalating political tension with China regarding Taiwan.

Stocks in Japan's travel and consumer firms have declined sharply after China recommended its residents to refrain from traveling to Japan.

This action by Chinese authorities heightened a political dispute that was sparked by comments from Tokyo's new prime minister about the potential of deploying troops in the case of a potential Chinese attack on Taiwan.

The development caused a wave of sell-offs across Japanese tourism-related shares.

• Oriental Land shares dropped by 5.7%
• The department store chain tumbled by 11.3%
• Japan Airlines declined by 3.75%

"The China-Japan dispute over Taiwan and China's travel warning advising against travel to Japan brings short-term headwinds for consumer-facing sectors.

"Chinese visitors represent roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and tourism services especially vulnerable."

GDP Decline Details

Japan's GDP declined by 0.4 percent in the third quarter, as manufacturers' overseas shipments were impacted by tariffs imposed by the US recently.

Overseas shipments were a major factor of the decline, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

Earlier this year, the US administration had threatened Japan with a additional 25 percent tariff on its products, which was later lowered to 15% when the two nations reached a trade agreement.

Consumer spending also fell, by 0.3% quarter-on-quarter.

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

"The Japanese economic situation was solid in the initial six months of this year and today's GDP figures showed that growth is paused for now.

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

The US administration has lately recognized the impact of tariffs on Americans, lowering duties on food imports including beef, tomatoes, coffee and fruits amid increasing concerns about rising costs.

Economic Calendar

• 8am GMT: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August