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Japan's economy has shown a contraction for the first time in six quarters, mainly driven by falling overseas shipments because of recent American tariffs.

G7 Growth Standings

The Japanese economy has become the first G7 country to announce an GDP decline in the most recent quarter.

With the US yet to publish its GDP figures for the third quarter, the present G7 growth leaderboard display:

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

Travel Shares Slump during Political Rift with Beijing

Alongside the economic contraction, Japan is experiencing an intensifying diplomatic tension with China regarding Taiwan.

Shares in Japanese tourism and consumer firms have declined significantly after China recommended its residents to refrain from visiting to Japan.

This decision by Beijing heightened a political dispute that was initiated by statements from Tokyo's new prime minister about the potential of sending forces in the case of a potential Chinese invasion on Taiwan.

The situation led to a surge of sell-offs across Japanese tourism-related stocks.

• Oriental Land stock dropped by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3%
• Japan Airlines fell by 3.75%

"The China-Japan dispute over Taiwan and Beijing's travel warning discouraging visits to Japan creates near-term difficulties for consumer-facing sectors.

"Chinese visitors account for roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and hospitality particularly vulnerable."

GDP Decline Details

Japanese gross domestic product fell by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were hit by duties imposed by the US this year.

Exports were a key factor of the contraction, falling by 1.2 percent compared with the April-June quarter, and were 4.5% lower than a year ago.

Previously, the US administration had threatened Japan with a new 25 percent tariff on its products, which was later lowered to 15% when the two countries reached a trade deal.

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

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

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

I anticipate Japan's economy to be back on a moderate recovery trend going forward."

The White House has recently acknowledged the effect of tariffs on US consumers, lowering duties on food imports including meat, produce, coffee and bananas amid growing concerns about increasing costs.

Business Agenda

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