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Japan's economy has recorded a drop for the initial time in a year and a half, largely driven by declining exports as a result of recent US trade duties.

Group of Seven Growth Rankings

The Japanese economy has become the first G7 country to disclose an GDP decline in the latest quarter.

With the United States yet to release its gross domestic product data for the third quarter, the present G7 growth rankings indicate:

• France: +0.5% expansion
• United Kingdom: 0.1 percent
• Canadian economy: 0.1 percent (provisional estimate)
• Germany: zero growth
• Italian economy: 0%
• Japan: negative 0.4 percent

Travel Shares Slump during Diplomatic Dispute with Beijing

Alongside the economic contraction, Japan is experiencing an escalating political conflict with China concerning Taiwan.

Stocks in Japan's travel and retail businesses have fallen sharply after China recommended its residents to avoid traveling to Japan.

This decision by Beijing heightened a diplomatic feud that was sparked by comments from Japan's recently appointed 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.

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

"The China-Japan tension over Taiwan and China's advisory advising against travel to Japan brings near-term challenges for consumer-facing sectors.

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

GDP Decline Breakdown

Japanese GDP dropped by 0.4% in the July-September quarter, as industrial overseas shipments were affected by tariffs levied by the United States this year.

Overseas shipments were a primary factor of the contraction, falling by 1.2% compared with the April-June quarter, and were 4.5% lower than a year ago.

Previously, the US administration had threatened Japan with a new 25 percent tariff on its products, which was later lowered to 15% when the two nations reached a trade deal.

Private demand also fell, by 0.3 percent quarter-on-quarter.

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

"The Japanese economic situation was solid in the first half of this year and the latest GDP data showed that momentum is halted temporarily.

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

The US administration has recently acknowledged the effect of tariffs on US consumers, reducing duties on food imports including beef, produce, coffee and bananas amid increasing concerns about increasing costs.

Economic Agenda

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