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The Japanese economic system has recorded a drop for the first time in a year and a half, mainly caused by weakening overseas shipments because of newly imposed US trade duties.

Group of Seven Economic Leaderboard

The Japanese economy stands as the initial G7 economy to report an output shrinkage in the latest three-month period.

As the US yet to publish its GDP figures for the third quarter, the present Group of Seven economic rankings display:

• France: 0.5 percent expansion
• UK: 0.1 percent
• Canada: +0.1% (preliminary figure)
• Germany: 0%
• Italy: no growth
• Japan: -0.4%

Travel Stocks Decline during Political Rift with China

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

Shares in Japan's travel and retail companies have fallen significantly after China urged its nationals to avoid visiting to Japan.

This move by Beijing intensified a diplomatic feud that was sparked by statements from Tokyo's new PM about the potential of sending troops in the case of a potential Chinese attack on Taiwan.

The situation caused a surge of selling across Japanese leisure shares.

• Oriental Land stock fell by 5.7%
• The department store chain tumbled by 11.3%
• The national carrier fell by 3.75 percent

"The China-Japan tension over Taiwan and China's travel warning discouraging travel to Japan creates short-term headwinds for consumer-facing sectors.

"Chinese visitors represent roughly 25 percent of Japan's inbound traffic, making department stores, luxury retail, and hospitality particularly vulnerable."

GDP Contraction Details

Japanese GDP fell by 0.4 percent in the July-September quarter, as industrial exports were impacted by tariffs imposed by the US this year.

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

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

Consumer spending also fell, by 0.3% 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 initial six months of this year and the latest GDP data showed that momentum is paused for now.

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

The US administration has lately recognized the effect of tariffs on Americans, reducing tariffs on imported food products including beef, produce, beverages and fruits amid growing concerns about rising costs.

Economic Agenda

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