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Japan's economy has shown a drop for the initial time in six quarters, mainly driven by falling overseas shipments due to recent American tariffs.

G7 Growth Standings

Japan has become the first G7 country to disclose an output shrinkage in the previous three-month period.

As the US yet to release its gross domestic product figures for the third quarter, the current G7 economic standings show:

• The French economy: 0.5 percent quarterly growth
• UK: +0.1%
• Canada: 0.1 percent (preliminary figure)
• German economy: 0%
• Italian economy: 0%
• Japan: negative 0.4 percent

Tourism Stocks Decline amid Political Dispute with Beijing

In addition to the GDP decline, Japan is dealing with an intensifying political dispute with China concerning Taiwan.

Stocks in Japanese travel and retail businesses have dropped sharply after China advised its residents to refrain from traveling to Japan.

This decision by Chinese authorities heightened a political dispute that was initiated by comments from Tokyo's recently appointed PM about the possibility of sending forces in the event of a hypothetical Chinese attack on Taiwan.

The situation led to a wave of sell-offs across Japan's tourism-related stocks.

• The Tokyo Disneyland operator stock dropped by 5.7 percent
• The department store chain plummeted by 11.3 percent
• The national carrier declined by 3.75%

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

"Chinese visitors represent roughly 25% of Japan's international visitors, making retail outlets, luxury retail, and hospitality particularly vulnerable."

GDP Decline Details

Japan's gross domestic product declined by 0.4 percent in the third quarter, as industrial overseas shipments were affected by tariffs imposed by the United States recently.

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

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

Private demand also declined, by 0.3 percent compared to the previous quarter.

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

"Japan's economy was solid in the first half of this year and the latest GDP figures showed that momentum is halted for now.

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

The White House has lately acknowledged the effect of tariffs on Americans, reducing duties on imported food products including meat, tomatoes, beverages and bananas amid increasing concerns about rising costs.

Economic Agenda

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