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Japan's economy has experienced a contraction for the initial time in six quarters, largely caused by falling overseas shipments because of newly imposed American tariffs.

G7 Growth Leaderboard

Japan has become the first G7 economy to report an economic contraction in the most recent three-month period.

With the United States yet to release its gross domestic product data for the third quarter, the current Group of Seven growth standings indicate:

• The French economy: +0.5% expansion
• UK: +0.1%
• Canadian economy: +0.1% (provisional estimate)
• German economy: zero growth
• Italian economy: 0%
• Japanese economy: -0.4%

Tourism Stocks Slump during Diplomatic Rift with China

In addition to the GDP decline, Japan is dealing with an intensifying political dispute with China concerning Taiwan.

Stocks in Japan's travel and consumer businesses have fallen noticeably after China urged its residents to refrain from visiting to Japan.

This decision by Beijing intensified a diplomatic feud that was sparked by comments from Tokyo's recently appointed prime minister about the possibility of deploying forces in the case of a hypothetical Chinese invasion on Taiwan.

The situation caused a wave of sell-offs across Japan's leisure shares.

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

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

"Chinese visitors represent roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and hospitality particularly vulnerable."

GDP Contraction Details

Japan's GDP fell by 0.4% in the third quarter, as industrial overseas shipments were affected by duties levied by the US recently.

Exports were a key driver of the contraction, falling by 1.2 percent 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 percent when the two nations concluded a trade agreement.

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

On an annualized basis, Japan's GDP contracted by 1.8% in the quarter through September.

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

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

The White House has lately acknowledged the impact of tariffs on US consumers, reducing tariffs on imported food products including beef, produce, coffee and fruits amid increasing concerns about increasing costs.

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