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The Japanese economic system has experienced a contraction for the initial time in six quarters, primarily caused by declining exports as a result of recent US trade duties.

G7 Growth Rankings

Japan stands as the first Group of Seven country to report an economic contraction in the previous three-month period.

As the US still needing to publish its gross domestic product figures for the third quarter, the current G7 growth standings display:

• France: +0.5% expansion
• United Kingdom: +0.1%
• Canada: 0.1 percent (preliminary figure)
• German economy: 0%
• Italian economy: 0%
• Japan: -0.4%

Tourism Stocks Decline during Political Rift with China

Alongside the economic contraction, Japan is facing an intensifying diplomatic tension with China concerning Taiwan.

Shares in Japanese tourism and consumer firms have fallen significantly after China urged its residents to refrain from visiting to Japan.

This move by Chinese authorities heightened a political dispute that was sparked by statements from Japan's recently appointed PM about the potential of sending forces in the case of a potential Chinese attack on Taiwan.

The situation caused a surge of sell-offs across Japan's leisure stocks.

• Oriental Land shares dropped by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3%
• The national carrier declined by 3.75%

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

"Tourists from China account for roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and tourism services especially at risk."

Economic Contraction Details

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

Exports were a primary driver of the contraction, dropping by 1.2 percent 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 percent tariff on its products, which was later reduced to 15 percent 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 shrank by 1.8 percent in the three months through September.

"Japan's economy was strong in the initial six months of this year and today's GDP data showed that momentum is halted temporarily.

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

The White House has recently recognized the effect of tariffs on Americans, lowering duties on imported food products including beef, produce, beverages and bananas amid growing concerns about rising costs.

Economic Calendar

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