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Japan's economy has shown a drop for the first time in a year and a half, mainly driven by falling exports as a result of recent US trade duties.

Group of Seven Economic Standings

The Japanese economy has become the initial G7 country to disclose an output shrinkage in the previous three-month period.

With the United States yet to publish its GDP figures for the third quarter, the present Group of Seven economic standings indicate:

• The French economy: 0.5 percent quarterly growth
• UK: +0.1%
• Canadian economy: 0.1 percent (preliminary figure)
• German economy: zero growth
• Italian economy: no growth
• Japan: -0.4%

Tourism Stocks Slump during Political Dispute with Beijing

In addition to the GDP decline, Japan is dealing with an growing diplomatic conflict with China regarding Taiwan.

Stocks in Japan's travel and consumer businesses have dropped significantly after China advised its nationals to avoid visiting to Japan.

This action by Beijing heightened a political dispute that was triggered by comments from Tokyo's recently appointed PM about the possibility of sending forces in the event of a hypothetical Chinese invasion on Taiwan.

The development caused a surge of selling across Japan's tourism-related stocks.

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

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

"Tourists from China represent roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and hospitality particularly vulnerable."

Economic Decline Details

Japanese gross domestic product declined by 0.4% in the third quarter, as industrial exports were hit by tariffs levied by the US this year.

Overseas shipments were a primary driver of the contraction, falling by 1.2% compared with the April-June quarter, and were 4.5% lower than a year ago.

Earlier this year, the US administration had threatened Japan with a additional 25% tariff on its goods, which was later lowered to 15% when the two nations reached a trade agreement.

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

On an annual basis, Japan's real gross domestic product contracted by 1.8% in the three months through September.

"Japan's economy was stable in the first half of this year and today's GDP figures showed that growth is halted temporarily.

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

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

Economic Agenda

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