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Japan's economy has recorded a drop for the initial time in six quarters, primarily driven by falling overseas shipments because of recent American tariffs.

Group of Seven Growth Standings

Japan has become the initial G7 nation to report an economic contraction in the most recent three-month period.

With the US still needing to release its GDP data for the third quarter, the present Group of Seven economic standings indicate:

• France: +0.5% expansion
• UK: +0.1%
• Canadian economy: 0.1 percent (preliminary figure)
• Germany: zero growth
• Italy: 0%
• Japan: negative 0.4 percent

Travel Stocks Slump during Diplomatic Rift with Beijing

In addition to the economic contraction, Japan is dealing with an escalating political tension with China concerning Taiwan.

Stocks in Japanese tourism and retail firms have declined sharply after China advised its citizens to refrain from visiting to Japan.

This move by Beijing intensified a political dispute that was sparked by remarks from Tokyo's recently appointed prime minister about the potential of sending forces in the case of a hypothetical Chinese attack on Taiwan.

The development triggered a wave of sell-offs across Japan's leisure stocks.

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

"The China-Japan dispute over Taiwan and China's travel warning discouraging travel to Japan introduces near-term challenges for retail and hospitality sectors.

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

GDP Contraction Details

Japan's gross domestic product fell by 0.4 percent in the third quarter, as manufacturers' exports were impacted by duties levied by the United States this year.

Overseas shipments were a primary driver of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5% lower than a the same period last year.

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

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

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

"Japan's economy was stable in the initial six months of this year and today's GDP figures showed that momentum is halted for now.

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

The White House has recently acknowledged the impact of tariffs on US consumers, reducing tariffs on food imports including meat, produce, coffee and fruits amid growing concerns about rising costs.

Business Agenda

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