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The Japanese economic system has recorded a decline for the first time in a year and a half, mainly driven by weakening overseas shipments as a result of recent US trade duties.

Group of Seven Growth Rankings

Japan has become the first G7 nation to announce an economic contraction in the previous three-month period.

As the US still needing to publish its GDP figures for the third quarter, the present Group of Seven growth rankings display:

• France: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canadian economy: +0.1% (preliminary figure)
• Germany: 0%
• Italy: 0%
• Japanese economy: -0.4%

Travel Shares Slump during Diplomatic Dispute with Beijing

In addition to the GDP decline, Japan is experiencing an intensifying diplomatic tension with China regarding Taiwan.

Stocks in Japan's travel and retail companies have fallen sharply after China recommended its nationals to avoid visiting to Japan.

This move by Beijing intensified a diplomatic feud that was initiated by comments from Japan's recently appointed PM about the potential of deploying troops in the case of a hypothetical Chinese attack on Taiwan.

The situation led to a surge of selling across Japan's leisure shares.

• Oriental Land shares fell by 5.7%
• Isetan Mitsukoshi plummeted by 11.3%
• Japan Airlines declined by 3.75 percent

"The China-Japan tension over Taiwan and Beijing's travel warning advising against travel to Japan introduces near-term difficulties for retail and hospitality sectors.

"Tourists from China account for roughly 25 percent of Japan's international visitors, making department stores, luxury retail, and hospitality especially vulnerable."

GDP Contraction Details

Japanese gross domestic product fell by 0.4 percent in the third quarter, as manufacturers' overseas shipments were hit by tariffs levied by the United States this year.

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

Previously, the US administration had threatened Japan with a additional 25 percent tariff on its products, which was later lowered to 15 percent when the two nations reached a trade deal.

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

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

"The Japanese economic situation was solid in the initial six months of this year and today's GDP figures showed that momentum is halted temporarily.

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

The US administration has lately acknowledged the effect of tariffs on Americans, lowering duties on food imports including beef, tomatoes, coffee and fruits amid growing concerns about increasing costs.

Economic Agenda

• 8am GMT: Switzerland GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August