The Japanese Economy Contracts as Exports Face Impact by American Trade Duties
Japan's economy has shown a decline for the initial time in a year and a half, primarily caused by declining overseas shipments due to newly imposed US trade duties.
G7 Growth Standings
The Japanese economy has become the first G7 economy to disclose an economic contraction in the most recent quarter.
With the US yet to release its gross domestic product data for the third quarter, the current G7 growth standings display:
- France: +0.5% quarterly growth
- United Kingdom: 0.1 percent
- Canada: +0.1% (preliminary figure)
- Germany: zero growth
- Italy: 0%
- Japanese economy: negative 0.4 percent
Tourism Shares Slump during Political Dispute with Beijing
In addition to the GDP decline, Japan is dealing with an escalating political conflict with China regarding Taiwan.
Shares in Japan's travel and retail businesses have declined noticeably after China urged its residents to avoid traveling to Japan.
This move by Beijing heightened a diplomatic feud that was initiated by comments from Tokyo's recently appointed prime minister about the potential of sending troops in the event of a potential Chinese attack on Taiwan.
The situation led to a surge of selling across Japanese leisure stocks.
- Oriental Land shares dropped by 5.7%
- Isetan Mitsukoshi tumbled by 11.3%
- The national carrier declined by 3.75%
"The China-Japan dispute over Taiwan and China's advisory discouraging travel to Japan brings short-term difficulties for consumer-facing sectors.
"Tourists from China represent roughly 25% of Japan's international visitors, making retail outlets, luxury retail, and tourism services particularly at risk."
Economic Contraction Breakdown
Japan's GDP fell by 0.4 percent in the July-September quarter, as industrial overseas shipments were affected by tariffs levied by the United States this year.
Exports were a primary factor of the contraction, dropping 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 proposed Japan with a additional 25 percent tariff on its products, which was later lowered to 15% when the two countries concluded a trade agreement.
Consumer spending also fell, by 0.3% compared to the previous 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 stable in the first half of this year and today's GDP figures showed that momentum is halted for now.
I expect Japan's economy to be returning on a moderate recovery trend going forward."
The White House has recently acknowledged the effect of tariffs on US consumers, reducing tariffs on food imports including beef, tomatoes, beverages and fruits amid growing concerns about rising costs.
Economic Agenda
- 8am GMT: Swiss GDP report for Q3
- 3pm GMT: US construction spending data for August
