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Japan's economy has recorded a decline for the initial time in six quarters, largely caused by declining overseas shipments due to newly imposed American trade duties.

G7 Economic Leaderboard

The Japanese economy stands as the initial G7 nation to announce an output shrinkage in the most recent quarter.

With the US still needing to publish its gross domestic product data for the third quarter, the current Group of Seven economic leaderboard indicate:

• France: 0.5 percent quarterly growth
• UK: +0.1%
• Canada: 0.1 percent (preliminary figure)
• German economy: 0%
• Italy: no growth
• Japan: negative 0.4 percent

Tourism Shares Decline amid Political Rift with China

Alongside the economic contraction, Japan is dealing with an intensifying political conflict with China concerning Taiwan.

Shares in Japan's travel and consumer firms have dropped noticeably after China advised its citizens to avoid traveling to Japan.

This decision by Chinese authorities escalated a diplomatic feud that was initiated by statements from Japan's new prime minister about the potential of sending forces in the event of a hypothetical Chinese attack on Taiwan.

The situation caused a surge of selling across Japan's tourism-related shares.

• Oriental Land stock dropped by 5.7%
• Isetan Mitsukoshi tumbled by 11.3 percent
• Japan Airlines declined by 3.75%

"The ongoing tension over Taiwan and China's travel warning discouraging visits to Japan introduces short-term headwinds for retail and hospitality sectors.

"Chinese visitors represent roughly 25% of Japan's international visitors, making department stores, high-end shopping, and tourism services particularly vulnerable."

Economic Decline Breakdown

Japan's GDP declined by 0.4 percent in the third quarter, as manufacturers' exports were affected by tariffs imposed by the United States recently.

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

Earlier this year, the American government had proposed Japan with a new 25 percent tariff on its products, which was later reduced to 15 percent when the two countries concluded a trade deal.

Private demand also fell, 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 quarter through September.

"The Japanese economic situation was stable in the initial six months of this year and the latest GDP figures showed that momentum is paused for now.

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

The US administration has recently recognized the effect of tariffs on US consumers, lowering tariffs on food imports including beef, produce, beverages and bananas amid growing concerns about increasing costs.

Economic Agenda

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