The Japanese Economy Contracts as Overseas Sales Suffer by US Tariffs
The Japanese economic system has recorded a decline for the first time in six quarters, primarily caused by falling overseas shipments because of recent US trade duties.
G7 Economic Rankings
The Japanese economy has become the first Group of Seven economy to announce an output shrinkage in the most recent quarter.
As the US yet to release its GDP data for the third quarter, the current Group of Seven economic rankings show:
- The French economy: 0.5 percent expansion
- UK: 0.1 percent
- Canada: +0.1% (provisional estimate)
- German economy: zero growth
- Italy: 0%
- Japan: -0.4%
Travel Shares Slump amid Political Rift with Beijing
In addition to the GDP decline, Japan is dealing with an escalating political conflict with China regarding Taiwan.
Stocks in Japan's tourism and consumer businesses have dropped noticeably after China urged its nationals to avoid visiting to Japan.
This action by Chinese authorities intensified a political dispute that was initiated by remarks from Japan's recently appointed prime minister about the potential of sending forces in the event of a potential Chinese invasion on Taiwan.
The development led to a wave of selling across Japan's leisure stocks.
- The Tokyo Disneyland operator shares dropped by 5.7 percent
- The department store chain tumbled by 11.3%
- The national carrier fell by 3.75%
"The China-Japan dispute over Taiwan and China's travel warning discouraging travel to Japan introduces near-term headwinds for consumer-facing sectors.
"Chinese visitors represent roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and tourism services especially at risk."
Economic Decline Details
Japan's GDP fell by 0.4 percent in the July-September quarter, as manufacturers' exports were hit by duties imposed by the US recently.
Exports were a primary driver of the contraction, falling by 1.2% compared with the April-June quarter, and were 4.5% lower than a the same period last year.
Earlier this year, the American government had threatened Japan with a additional 25% tariff on its products, which was later lowered to 15 percent when the two countries concluded a trade deal.
Private demand also declined, by 0.3% compared to the previous quarter.
On an annualized basis, Japan's GDP shrank by 1.8 percent in the quarter through September.
"The Japanese economic situation was solid in the initial six months of this year and today's GDP figures showed that momentum is paused temporarily.
I expect Japan's economy to be back on a moderate growth trend going forward."
The White House has recently acknowledged the effect of tariffs on US consumers, lowering tariffs on food imports including meat, tomatoes, coffee and fruits 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
