Japan's Economy Shrinks while Overseas Sales Face Impact by American Tariffs
Japan's economy has experienced a contraction for the first time in a year and a half, mainly driven by weakening exports because of recent US trade duties.
G7 Growth Rankings
Japan has become the first Group of Seven country to disclose an economic contraction in the most recent three-month period.
With the US yet to publish its GDP data for the third quarter, the present G7 growth leaderboard display:
- The French economy: 0.5 percent quarterly growth
- United Kingdom: +0.1%
- Canada: 0.1 percent (preliminary figure)
- Germany: zero growth
- Italian economy: no growth
- Japan: negative 0.4 percent
Travel Stocks Slump amid Diplomatic Rift with Beijing
Alongside the economic contraction, Japan is dealing with an escalating diplomatic dispute with China regarding Taiwan.
Shares in Japanese tourism and consumer companies have dropped noticeably after China advised its citizens to avoid visiting to Japan.
This action by Beijing heightened a political dispute that was sparked by statements from Japan's new prime minister about the potential of deploying troops in the case of a potential Chinese attack on Taiwan.
The development caused a surge of selling across Japan's tourism-related shares.
- The Tokyo Disneyland operator shares fell by 5.7 percent
- Isetan Mitsukoshi tumbled by 11.3 percent
- Japan Airlines fell by 3.75 percent
"The ongoing dispute over Taiwan and Beijing's travel warning discouraging travel to Japan introduces short-term headwinds for consumer-facing sectors.
"Tourists from China account for roughly 25 percent of Japan's inbound traffic, making retail outlets, high-end shopping, and tourism services especially at risk."
GDP Decline Details
Japanese GDP fell by 0.4% in the third quarter, as industrial overseas shipments were affected by duties levied by the United States recently.
Overseas shipments were a major factor of the decline, dropping by 1.2% compared with the previous quarter, and were 4.5 percent lower than a the same period last year.
Previously, the US administration had proposed Japan with a additional 25% tariff on its goods, which was later lowered to 15 percent when the two countries reached a trade deal.
Private demand also fell, by 0.3% compared to the previous quarter.
On an annualized basis, Japan's GDP shrank by 1.8% in the quarter through September.
"The Japanese economic situation was strong in the first half of this year and today's GDP data showed that growth is halted temporarily.
I expect Japan's economy to be returning on a gradual growth trend going forward."
The White House has lately acknowledged the effect of tariffs on US consumers, reducing duties on food imports including beef, produce, coffee and bananas amid growing concerns about increasing costs.
Economic Agenda
- 8am GMT: Switzerland GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August