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The Japanese economic system has experienced a decline for the first time in six quarters, mainly caused by weakening exports because of recent US tariffs.

Group of Seven Economic Rankings

The Japanese economy has become the first Group of Seven economy to report an economic contraction in the most recent quarter.

With the United States still needing to release its GDP figures for the third quarter, the present Group of Seven growth standings indicate:

• France: +0.5% expansion
• UK: 0.1 percent
• Canadian economy: 0.1 percent (provisional estimate)
• German economy: zero growth
• Italian economy: no growth
• Japanese economy: -0.4%

Tourism Stocks Decline amid Diplomatic Rift with China

Alongside the economic contraction, Japan is facing an growing diplomatic dispute with China regarding Taiwan.

Shares in Japan's travel and retail businesses have dropped noticeably after China recommended its residents to refrain from traveling to Japan.

This decision by Beijing intensified a diplomatic feud that was triggered by remarks from Japan's recently appointed PM about the possibility of sending troops in the event of a hypothetical Chinese invasion on Taiwan.

The situation triggered a wave of selling across Japanese leisure shares.

• The Tokyo Disneyland operator shares dropped by 5.7%
• The department store chain plummeted by 11.3%
• The national carrier fell by 3.75%

"The ongoing tension over Taiwan and China's travel warning advising against travel to Japan introduces short-term difficulties for consumer-facing sectors.

"Chinese visitors represent roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and tourism services particularly vulnerable."

Economic Decline Breakdown

Japanese GDP fell by 0.4% in the third quarter, as industrial overseas shipments were impacted by duties 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 the same period last year.

Earlier this year, the American government had proposed Japan with a additional 25% tariff on its products, which was later lowered to 15 percent when the two countries reached a trade agreement.

Consumer spending also fell, by 0.3 percent compared to the previous quarter.

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

"The Japanese economic situation was solid in the first half of this year and today's GDP data showed that momentum is halted for now.

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 tariffs on imported food products including meat, produce, coffee and fruits amid increasing concerns about rising costs.

Economic Agenda

• 8am GMT: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August