The Japanese Economic Output Declines while Overseas Sales Are Hit by US Trade Duties
Japan's economy has shown a decline for the initial time in six quarters, mainly caused by falling overseas shipments because of newly imposed US trade duties.
Group of Seven Growth Rankings
The Japanese economy stands as the first Group of Seven country to announce an GDP decline in the most recent three-month period.
As the United States still needing to publish its GDP figures for the third quarter, the current Group of Seven economic rankings show:
- The French economy: +0.5% expansion
- United Kingdom: +0.1%
- Canada: 0.1 percent (provisional estimate)
- German economy: 0%
- Italian economy: 0%
- Japanese economy: -0.4%
Travel Stocks Decline during Diplomatic Dispute with China
In addition to the GDP decline, Japan is dealing with an growing political tension with China concerning Taiwan.
Shares in Japanese tourism and consumer companies have dropped sharply after China recommended its nationals to avoid traveling to Japan.
This move by Chinese authorities heightened a diplomatic feud that was initiated by remarks from Japan's recently appointed prime minister about the potential of sending troops in the case of a hypothetical Chinese attack on Taiwan.
The situation triggered a wave of sell-offs across Japan's tourism-related stocks.
- Oriental Land stock fell by 5.7 percent
- The department store chain tumbled by 11.3%
- The national carrier declined by 3.75%
"The China-Japan tension over Taiwan and China's travel warning discouraging travel to Japan brings near-term difficulties for consumer-facing sectors.
"Tourists from China account for roughly 25% of Japan's international visitors, making retail outlets, high-end shopping, and hospitality especially at risk."
Economic Decline Breakdown
Japanese gross domestic product fell by 0.4 percent in the July-September quarter, as manufacturers' exports were affected by duties imposed by the US recently.
Overseas shipments were a primary factor of the contraction, falling by 1.2% compared with the previous quarter, and were 4.5% lower than a year ago.
Earlier this year, the American government had threatened Japan with a new 25% tariff on its goods, which was later lowered to 15 percent when the two countries concluded a trade agreement.
Private demand also fell, by 0.3 percent quarter-on-quarter.
On an annualized basis, Japan's real gross domestic product contracted by 1.8% in the three months through September.
"Japan's economy was stable in the initial six months of this year and the latest GDP data showed that momentum is paused for now.
I anticipate Japan's economy to be back on a gradual growth trend going forward."
The White House has recently recognized the effect of tariffs on Americans, lowering duties on imported food products including meat, tomatoes, beverages and fruits amid growing concerns about increasing costs.
Business Calendar
- 8am GMT: Swiss GDP report for Q3
- 3pm GMT: US construction spending data for August
