Japan's Economy Declines as Overseas Sales Suffer by American Tariffs
The Japanese economic system has experienced a contraction for the first time in a year and a half, largely driven by weakening exports as a result of recent American trade duties.
Group of Seven Economic Rankings
Japan has become the initial G7 economy to announce an economic contraction in the most recent quarter.
As the US still needing to publish its gross domestic product figures for the third quarter, the present Group of Seven economic leaderboard display:
- The French economy: +0.5% quarterly growth
- United Kingdom: 0.1 percent
- Canada: 0.1 percent (provisional estimate)
- Germany: zero growth
- Italy: 0%
- Japan: negative 0.4 percent
Tourism Stocks Slump amid Political Rift with China
In addition to the GDP decline, Japan is experiencing an intensifying political conflict with China regarding Taiwan.
Stocks in Japanese travel and retail companies have dropped sharply after China advised its nationals to avoid traveling to Japan.
This decision by Chinese authorities intensified a diplomatic feud that was sparked by remarks from Tokyo's new PM about the potential of deploying troops in the case of a potential Chinese attack on Taiwan.
The situation triggered a wave of selling across Japanese tourism-related stocks.
- Oriental Land shares fell by 5.7%
- Isetan Mitsukoshi plummeted by 11.3%
- Japan Airlines fell by 3.75 percent
"The China-Japan tension over Taiwan and Beijing's travel warning advising against travel to Japan introduces short-term headwinds for consumer-facing sectors.
"Chinese visitors account for roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and hospitality especially vulnerable."
Economic Contraction Breakdown
Japanese GDP declined by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were hit by duties imposed by the United States this year.
Overseas shipments were a major driver of the decline, dropping by 1.2% compared with the previous quarter, and were 4.5 percent lower than a year ago.
Earlier this year, the American government had proposed Japan with a additional 25% tariff on its products, which was later reduced to 15 percent when the two countries reached a trade agreement.
Consumer spending also fell, by 0.3 percent compared to the previous quarter.
On an annualized basis, Japan's GDP shrank by 1.8% in the three months through September.
"The Japanese economic situation was strong in the initial six months of this year and the latest GDP data showed that momentum is halted temporarily.
I expect Japan's economy to be returning on a moderate recovery trend going forward."
The US administration has recently acknowledged the impact of tariffs on Americans, reducing duties on food imports including meat, produce, beverages and bananas amid growing concerns about rising costs.
Business Agenda
- 8am GMT: Switzerland GDP report for Q3
- 15:00 Greenwich Mean Time: US construction spending data for August
