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Japan's economy has recorded a drop for the initial time in a year and a half, primarily driven by weakening exports due to recent American trade duties.

Group of Seven Economic Standings

Japan has become the initial Group of Seven nation to report an economic contraction in the latest three-month period.

As the United States still needing to release its gross domestic product data for the third quarter, the current G7 growth leaderboard show:

• France: +0.5% quarterly growth
• UK: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• German economy: zero growth
• Italian economy: no growth
• Japan: negative 0.4 percent

Travel Stocks Decline amid Diplomatic Rift with Beijing

In addition to the GDP decline, Japan is experiencing an escalating diplomatic dispute with China concerning Taiwan.

Shares in Japanese tourism and consumer businesses have dropped sharply after China recommended its nationals to avoid traveling to Japan.

This move by Beijing intensified a diplomatic feud that was initiated by remarks from Japan's new prime minister about the potential of deploying troops in the case of a potential Chinese invasion on Taiwan.

The situation triggered a surge of sell-offs across Japan's tourism-related shares.

• The Tokyo Disneyland operator shares dropped by 5.7%
• Isetan Mitsukoshi tumbled by 11.3 percent
• Japan Airlines fell by 3.75%

"The ongoing tension over Taiwan and Beijing's advisory discouraging travel to Japan creates near-term headwinds for retail and hospitality sectors.

"Tourists from China represent roughly 25 percent of Japan's international visitors, making retail outlets, high-end shopping, and hospitality especially vulnerable."

GDP Decline Details

Japan's GDP dropped by 0.4% in the July-September quarter, as manufacturers' exports were affected by duties imposed by the US recently.

Exports were a major driver of the contraction, falling by 1.2% compared with the April-June 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 goods, which was later lowered to 15% when the two countries concluded a trade agreement.

Consumer spending also declined, by 0.3% quarter-on-quarter.

On an annualized basis, Japan's real gross domestic product contracted by 1.8 percent in the quarter through September.

"The Japanese economic situation was solid in the initial six months of this year and the latest GDP data showed that growth is paused for now.

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

The US administration has lately recognized the impact of tariffs on Americans, lowering duties on food imports including meat, produce, beverages and fruits amid increasing concerns about rising costs.

Business Agenda

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