Japan's economy has experienced a contraction for the first time in a year and a half, mainly driven by declining exports because of newly imposed American trade duties.
Japan stands as the initial G7 nation to report an GDP decline in the latest three-month period.
With the United States still needing to release its GDP data for Q3 2025, the present G7 growth rankings indicate:
Alongside the GDP decline, Japan is facing an escalating diplomatic dispute with China concerning Taiwan.
Stocks in Japanese tourism and retail businesses have declined noticeably after China urged its residents to avoid visiting to Japan.
This action by Beijing heightened a diplomatic feud that was sparked by comments from Tokyo's new prime minister about the possibility of sending forces in the case of a potential Chinese attack on Taiwan.
The development triggered a wave of selling across Japanese tourism-related shares.
"The China-Japan tension over Taiwan and China's advisory advising against travel to Japan creates short-term difficulties for consumer-facing sectors.
"Chinese visitors account for roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and hospitality especially vulnerable."
Japan's gross domestic product fell by 0.4 percent in the July-September quarter, as manufacturers' exports were affected by tariffs levied by the US this year.
Overseas shipments were a major factor of the decline, dropping by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a year ago.
Earlier this year, the American government had threatened Japan with a additional 25 percent tariff on its products, which was later reduced to 15 percent when the two countries concluded a trade deal.
Private demand also declined, by 0.3 percent compared to the previous quarter.
On an annualized basis, Japan's real gross domestic product shrank by 1.8 percent in the three months through September.
"Japan's economy was stable in the first half of this year and today's GDP figures showed that growth is paused for now.
I expect Japan's economy to be back on a moderate recovery trend going forward."
The White House has recently acknowledged the impact of tariffs on US consumers, lowering duties on food imports including beef, tomatoes, coffee and fruits amid increasing concerns about rising costs.
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