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Japan's economy has experienced a contraction for the first time in a year and a half, mainly driven by weakening exports as a result of newly imposed American tariffs.

G7 Economic Leaderboard

The Japanese economy stands as the first G7 nation to disclose an economic contraction in the latest quarter.

With the United States still needing to publish its gross domestic product figures for the third quarter, the current Group of Seven economic leaderboard 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: -0.4%

Travel Stocks Decline during Diplomatic Rift with China

In addition to the GDP decline, Japan is facing an growing diplomatic conflict with China regarding Taiwan.

Stocks in Japan's travel and consumer firms have fallen noticeably after China urged its nationals to avoid visiting to Japan.

This action by Beijing escalated a political dispute that was initiated by statements from Japan's new prime minister about the possibility of deploying troops in the case of a potential Chinese attack on Taiwan.

The situation caused a wave of selling across Japanese leisure stocks.

• Oriental Land shares dropped by 5.7 percent
• The department store chain plummeted by 11.3%
• The national carrier fell by 3.75%

"The ongoing tension over Taiwan and China's travel warning discouraging visits to Japan creates short-term challenges for consumer-facing sectors.

"Tourists from China represent roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and tourism services especially at risk."

Economic Decline Breakdown

Japanese gross domestic product dropped by 0.4 percent in the July-September quarter, as industrial exports were impacted by tariffs imposed by the US recently.

Overseas shipments were a primary factor of the decline, dropping by 1.2% compared with the previous quarter, and were 4.5% lower than a year ago.

Previously, the American government had proposed Japan with a additional 25 percent tariff on its products, which was later lowered to 15% when the two nations reached a trade agreement.

Private demand also declined, by 0.3% compared to the previous quarter.

On an annual basis, Japan's GDP contracted by 1.8% in the three months through September.

"The Japanese economic situation was strong in the first half of this year and today's GDP data 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, reducing duties on food imports including meat, tomatoes, coffee and bananas amid growing concerns about rising costs.

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