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Japan's economy has shown a decline for the first time in six quarters, largely caused by declining overseas shipments due to recent US trade duties.

G7 Economic Rankings

Japan stands as the initial Group of Seven economy to report an economic contraction in the previous quarter.

With the US still needing to publish its gross domestic product data for the third quarter, the present G7 growth standings indicate:

• The French economy: 0.5 percent expansion
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (preliminary figure)
• German economy: zero growth
• Italy: no growth
• Japan: -0.4%

Tourism Shares Decline during Diplomatic Dispute with China

In addition to the economic contraction, Japan is facing an escalating diplomatic tension with China regarding Taiwan.

Stocks in Japan's travel and retail companies have dropped significantly after China urged its residents to refrain from traveling to Japan.

This decision by Beijing heightened a political dispute that was triggered by statements from Tokyo's recently appointed PM about the possibility of sending troops in the case of a potential Chinese invasion on Taiwan.

The situation triggered a wave of sell-offs across Japan's leisure stocks.

• Oriental Land stock fell by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier fell by 3.75 percent

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

"Tourists from China account for roughly 25 percent of Japan's international visitors, making retail outlets, luxury retail, and hospitality particularly at risk."

Economic Decline Details

Japan's gross domestic product declined by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were affected by tariffs levied by the United States this year.

Overseas shipments were a key factor of the decline, dropping by 1.2% 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 new 25% tariff on its products, which was later reduced to 15% when the two countries concluded a trade deal.

Private demand also declined, by 0.3% quarter-on-quarter.

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

"Japan's economy was solid in the initial six months of this year and today's GDP data showed that growth is paused for now.

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

The White House has recently recognized the impact of tariffs on Americans, lowering tariffs on food imports including meat, produce, beverages and fruits amid growing concerns about rising costs.

Business Agenda

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