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

Group of Seven Growth Leaderboard

Japan has become the initial Group of Seven country to report an economic contraction in the latest quarter.

As the US still needing to release its gross domestic product figures for the third quarter, the current Group of Seven growth standings indicate:

• France: +0.5% expansion
• United Kingdom: +0.1%
• Canada: 0.1 percent (preliminary figure)
• German economy: zero growth
• Italy: no growth
• Japan: negative 0.4 percent

Travel Shares Slump amid Political Dispute with China

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

Shares in Japan's travel and consumer companies have fallen sharply after China urged its residents to refrain from visiting to Japan.

This action by Chinese authorities heightened a political dispute that was initiated by statements from Tokyo's new PM about the possibility of deploying forces in the case of a hypothetical Chinese invasion on Taiwan.

The development led to a surge of sell-offs across Japan's leisure stocks.

• The Tokyo Disneyland operator shares dropped by 5.7 percent
• The department store chain plummeted by 11.3%
• The national carrier declined by 3.75%

"The ongoing tension over Taiwan and Beijing's travel warning discouraging visits to Japan introduces short-term headwinds for retail and hospitality sectors.

"Tourists from China account for roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and hospitality especially at risk."

Economic Decline Breakdown

Japanese gross domestic product declined by 0.4% in the third quarter, as manufacturers' overseas shipments were impacted by duties levied by the US this year.

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

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

Private demand also declined, by 0.3% compared to the previous quarter.

On an annualized basis, Japan's real gross domestic product shrank by 1.8 percent in the quarter through September.

"Japan's economy was solid in the first half of this year and the latest GDP data showed that growth is halted temporarily.

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

The White House has lately recognized the impact of tariffs on US consumers, lowering tariffs on imported food products including beef, produce, coffee and bananas amid increasing concerns about increasing costs.

Business Agenda

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