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Japan's economy has shown a contraction for the initial time in a year and a half, largely caused by declining overseas shipments because of newly imposed American tariffs.

Group of Seven Growth Rankings

Japan stands as the first G7 country to announce an economic contraction in the most recent three-month period.

As the United States still needing to publish its GDP figures for the third quarter, the current G7 economic leaderboard indicate:

• The French economy: 0.5 percent quarterly growth
• UK: 0.1 percent
• Canadian economy: 0.1 percent (preliminary figure)
• German economy: 0%
• Italian economy: 0%
• Japanese economy: -0.4%

Travel Shares Decline amid Diplomatic Rift with China

In addition to the economic contraction, Japan is dealing with an escalating diplomatic tension with China concerning Taiwan.

Stocks in Japanese tourism and retail companies have fallen noticeably after China urged its residents to avoid visiting to Japan.

This decision by Beijing intensified a diplomatic feud that was sparked by comments from Tokyo's new prime minister about the possibility of deploying troops in the case of a hypothetical Chinese invasion on Taiwan.

The development triggered a wave of selling across Japanese tourism-related shares.

• Oriental Land shares fell by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3 percent
• The national carrier fell by 3.75%

"The China-Japan tension over Taiwan and Beijing's travel warning advising against travel to Japan creates short-term challenges for consumer-facing sectors.

"Tourists from China account for roughly 25% of Japan's inbound traffic, making retail outlets, high-end shopping, and tourism services especially at risk."

GDP Decline Details

Japan's GDP dropped by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were impacted by tariffs levied by the US this year.

Overseas shipments were a major driver of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5% lower than a year ago.

Previously, the American government had proposed Japan with a new 25 percent tariff on its goods, which was later reduced to 15% when the two nations concluded a trade deal.

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

On an annual basis, Japan's real gross domestic product shrank by 1.8 percent in the three months through September.

"The Japanese economic situation was stable 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 moderate growth trend going forward."

The US administration has lately acknowledged the effect of tariffs on US consumers, reducing duties on imported food products including beef, tomatoes, beverages and bananas amid increasing concerns about increasing costs.

Economic Calendar

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