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Japan's economy has experienced a drop for the first time in six quarters, mainly driven by falling overseas shipments as a result of newly imposed American trade duties.

G7 Economic Rankings

Japan has become the initial Group of Seven nation to report an output shrinkage in the previous three-month period.

As the US still needing to publish its GDP figures for the third quarter, the present G7 growth leaderboard show:

• France: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canadian economy: +0.1% (preliminary figure)
• German economy: zero growth
• Italy: no growth
• Japan: -0.4%

Tourism Shares Decline during Diplomatic Dispute with Beijing

Alongside the GDP decline, Japan is facing an growing political dispute with China regarding Taiwan.

Stocks in Japanese travel and retail companies have declined significantly after China advised its nationals to refrain from visiting to Japan.

This move by Beijing intensified a diplomatic feud that was sparked by comments from Japan's new PM about the possibility of deploying forces in the case of a potential Chinese attack on Taiwan.

The development led to a surge of selling across Japan's tourism-related stocks.

• The Tokyo Disneyland operator shares fell by 5.7%
• The department store chain plummeted by 11.3 percent
• Japan Airlines fell by 3.75 percent

"The ongoing dispute over Taiwan and China's travel warning advising against visits to Japan introduces near-term challenges for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and hospitality especially vulnerable."

GDP Contraction Breakdown

Japan's GDP declined by 0.4 percent in the July-September quarter, as industrial overseas shipments were impacted by tariffs levied by the United States recently.

Exports were a primary 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.

Earlier this year, the US administration had threatened Japan with a additional 25% tariff on its products, which was later reduced to 15% when the two nations reached a trade deal.

Consumer spending also fell, by 0.3% compared to the previous quarter.

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

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

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

The White House has recently acknowledged the impact of tariffs on Americans, lowering duties on food imports including beef, produce, beverages and fruits amid growing concerns about rising costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August