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Japan's economy has recorded a contraction for the initial time in six quarters, largely caused by declining exports due to newly imposed US tariffs.

Group of Seven Growth Leaderboard

Japan has become the initial Group of Seven country to announce an output shrinkage in the previous quarter.

As the US yet to release its gross domestic product data for the third quarter, the current G7 growth standings indicate:

• The French economy: 0.5 percent quarterly growth
• United Kingdom: +0.1%
• Canada: 0.1 percent (provisional estimate)
• German economy: zero growth
• Italian economy: no growth
• Japan: negative 0.4 percent

Tourism Stocks Slump amid Diplomatic Rift with Beijing

Alongside the GDP decline, Japan is experiencing an intensifying diplomatic conflict with China regarding Taiwan.

Shares in Japanese travel and consumer companies have dropped significantly after China recommended its residents to avoid visiting to Japan.

This decision by Chinese authorities intensified a diplomatic feud that was sparked by statements from Tokyo's new PM about the potential of sending troops in the event of a hypothetical Chinese attack on Taiwan.

The situation caused a wave of sell-offs across Japanese leisure shares.

• Oriental Land stock dropped by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3 percent
• Japan Airlines fell by 3.75%

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

"Tourists from China account for roughly 25% of Japan's international visitors, making department stores, high-end shopping, and tourism services especially vulnerable."

GDP Decline Breakdown

Japan's GDP fell by 0.4 percent in the third quarter, as manufacturers' exports were hit by tariffs levied by the United States recently.

Exports were a primary driver of the decline, falling by 1.2% compared with the previous quarter, and were 4.5 percent lower than a the same period last year.

Earlier this year, the US administration had threatened Japan with a new 25 percent tariff on its goods, which was later lowered to 15 percent when the two nations concluded a trade deal.

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

On an annualized basis, Japan's GDP 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 momentum is paused temporarily.

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

The US administration has lately recognized the impact of tariffs on Americans, lowering duties on food imports including meat, produce, beverages and fruits amid increasing concerns about increasing costs.

Economic Calendar

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