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The Japanese economic system has experienced a drop for the initial time in six quarters, mainly driven by declining overseas shipments due to newly imposed American tariffs.

Group of Seven Economic Leaderboard

The Japanese economy has become the first Group of Seven economy to announce an economic contraction in the most recent three-month period.

As the US still needing to release its gross domestic product figures for the third quarter, the present G7 growth rankings display:

• France: 0.5 percent quarterly growth
• United Kingdom: 0.1 percent
• Canadian economy: 0.1 percent (preliminary figure)
• Germany: 0%
• Italian economy: no growth
• Japanese economy: negative 0.4 percent

Travel Stocks Decline amid Political Dispute with China

In addition to the economic contraction, Japan is dealing with an growing diplomatic dispute with China regarding Taiwan.

Shares in Japan's tourism and retail companies have fallen significantly after China urged its residents to refrain from traveling to Japan.

This decision by Chinese authorities intensified a diplomatic feud that was sparked by remarks from Japan's recently appointed prime minister about the potential of deploying forces in the event of a hypothetical Chinese attack on Taiwan.

The development led to a wave of selling across Japan's tourism-related stocks.

• The Tokyo Disneyland operator stock dropped by 5.7%
• Isetan Mitsukoshi plummeted by 11.3 percent
• Japan Airlines declined by 3.75%

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

"Tourists from China account for roughly 25% of Japan's international visitors, making department stores, luxury retail, and tourism services particularly vulnerable."

Economic Contraction Details

Japanese GDP fell by 0.4 percent in the third quarter, as industrial overseas shipments were affected by tariffs imposed by the US recently.

Overseas shipments were a primary driver of the decline, dropping by 1.2% compared with the previous quarter, and were 4.5 percent lower than a year ago.

Previously, the US administration had proposed Japan with a additional 25% tariff on its goods, which was later lowered to 15 percent when the two countries reached a trade agreement.

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

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

"Japan's economy was strong in the first half of this year and today's GDP data showed that momentum is paused for now.

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

The White House has recently acknowledged the impact of tariffs on Americans, lowering tariffs on food imports including beef, produce, beverages and bananas amid increasing concerns about rising costs.

Economic Agenda

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