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Japan's economy has experienced a contraction for the initial time in six quarters, mainly driven by weakening exports due to newly imposed American tariffs.

G7 Economic Leaderboard

The Japanese economy stands as the first Group of Seven nation to report an output shrinkage in the latest quarter.

As the United States yet to publish its gross domestic product figures for the third quarter, the current G7 growth standings show:

• The French economy: 0.5 percent expansion
• United Kingdom: +0.1%
• Canadian economy: +0.1% (provisional estimate)
• Germany: zero growth
• Italian economy: no growth
• Japan: negative 0.4 percent

Travel Stocks Decline amid Political Dispute with China

Alongside the GDP decline, Japan is experiencing an intensifying political dispute with China concerning Taiwan.

Shares in Japan's travel and retail businesses have dropped sharply after China recommended its residents to refrain from traveling to Japan.

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

The development triggered a wave of selling across Japan's leisure shares.

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

"The ongoing dispute over Taiwan and Beijing's advisory advising against visits to Japan introduces near-term headwinds for retail and hospitality sectors.

"Chinese visitors represent roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and hospitality especially at risk."

Economic Decline Breakdown

Japan's GDP fell by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were affected by duties levied by the United States recently.

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

Previously, the US administration had proposed Japan with a new 25% tariff on its goods, which was later reduced to 15 percent when the two nations concluded a trade agreement.

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

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

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

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

The US administration has lately recognized the impact of tariffs on Americans, reducing duties on imported food products including beef, produce, coffee and bananas amid growing concerns about rising costs.

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