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Japan's economy has shown a decline for the first time in six quarters, mainly driven by falling overseas shipments as a result of newly imposed US tariffs.

Group of Seven Economic Rankings

The Japanese economy has become the first G7 nation to announce an economic contraction in the latest three-month period.

As the US still needing to release its GDP figures for the third quarter, the present Group of Seven economic leaderboard display:

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

Travel Shares Decline amid Diplomatic Dispute with Beijing

Alongside the economic contraction, Japan is dealing with an growing political conflict with China concerning Taiwan.

Stocks in Japan's travel and consumer firms have fallen significantly after China advised its nationals to refrain from traveling to Japan.

This decision by Chinese authorities escalated a political dispute that was triggered by statements from Japan's new prime minister about the potential of sending forces in the case of a potential Chinese invasion on Taiwan.

The situation triggered a wave of selling across Japanese tourism-related shares.

• The Tokyo Disneyland operator shares fell by 5.7 percent
• The department store chain plummeted by 11.3 percent
• Japan Airlines declined by 3.75 percent

"The China-Japan tension over Taiwan and China's travel warning advising against visits to Japan creates short-term challenges for retail and hospitality sectors.

"Tourists from China account for roughly 25% of Japan's inbound traffic, making retail outlets, high-end shopping, and hospitality particularly vulnerable."

GDP Decline Details

Japanese GDP declined by 0.4% in the July-September quarter, as manufacturers' exports were affected by duties imposed by the US this year.

Exports were a major factor of the contraction, falling by 1.2 percent compared with the previous quarter, and were 4.5 percent lower than a year ago.

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

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

On an annual basis, Japan's GDP contracted by 1.8% in the three months through September.

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

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

The US administration has recently recognized the impact of tariffs on Americans, reducing duties on imported food products including beef, tomatoes, beverages and fruits amid increasing concerns about rising costs.

Business Agenda

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August