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Japan's economy has recorded a contraction for the initial time in a year and a half, largely driven by weakening overseas shipments as a result of recent American tariffs.

G7 Growth Leaderboard

The Japanese economy has become the initial Group of Seven nation to disclose an GDP decline in the most recent three-month period.

As the US yet to publish its GDP data for the third quarter, the present G7 economic standings show:

• France: +0.5% expansion
• United Kingdom: 0.1 percent
• Canadian economy: +0.1% (preliminary figure)
• German economy: zero growth
• Italian economy: 0%
• Japanese economy: -0.4%

Travel Stocks Slump during Political Rift with China

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

Stocks in Japan's travel and consumer businesses have dropped sharply after China advised its nationals to refrain from traveling to Japan.

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

The development triggered a wave of selling across Japan's tourism-related stocks.

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

"The ongoing tension over Taiwan and Beijing's travel warning discouraging travel to Japan brings short-term difficulties for consumer-facing sectors.

"Chinese visitors represent roughly 25 percent of Japan's inbound traffic, making retail outlets, high-end shopping, and hospitality especially vulnerable."

GDP Contraction Details

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

Exports were a key 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 proposed Japan with a additional 25 percent tariff on its goods, which was later lowered to 15% when the two countries reached a trade agreement.

Private demand also fell, by 0.3% quarter-on-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 strong in the initial six months of this year and today's GDP data showed that growth is halted for now.

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

The US administration has lately recognized the impact of tariffs on Americans, lowering duties on food imports including beef, 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