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Japan's economy has recorded a contraction for the first time in a year and a half, mainly driven by falling exports as a result of recent American tariffs.

G7 Economic Leaderboard

The Japanese economy stands as the initial Group of Seven country to disclose an GDP decline in the latest quarter.

As the United States still needing to release its GDP figures for the third quarter, the current Group of Seven economic standings show:

• The French economy: 0.5 percent expansion
• UK: 0.1 percent
• Canadian economy: +0.1% (preliminary figure)
• German economy: 0%
• Italian economy: no growth
• Japanese economy: negative 0.4 percent

Travel Stocks Slump amid Political Dispute with China

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

Stocks in Japan's tourism and consumer companies have dropped sharply after China recommended its nationals to refrain from visiting to Japan.

This action by Beijing heightened a diplomatic feud that was sparked by remarks from Japan's new PM about the possibility of deploying forces in the event of a potential Chinese invasion on Taiwan.

The situation caused a wave of sell-offs across Japan's tourism-related shares.

• The Tokyo Disneyland operator shares dropped by 5.7 percent
• The department store chain tumbled by 11.3%
• Japan Airlines fell by 3.75 percent

"The China-Japan dispute over Taiwan and Beijing's advisory discouraging travel to Japan introduces short-term challenges for consumer-facing sectors.

"Tourists from China account for roughly 25% of Japan's inbound traffic, making retail outlets, luxury retail, and tourism services especially at risk."

GDP Contraction Breakdown

Japan's gross domestic product declined by 0.4 percent in the third quarter, as manufacturers' exports were impacted by tariffs levied by the US this year.

Exports were a major driver of the contraction, dropping by 1.2% compared with the April-June quarter, and were 4.5 percent lower than a year ago.

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

Private demand also fell, by 0.3% quarter-on-quarter.

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

"Japan's economy was stable in the first half of this year and today's GDP figures showed that growth is halted for now.

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

The White House has recently recognized the impact of tariffs on Americans, reducing tariffs on imported food products including beef, tomatoes, beverages and bananas amid increasing concerns about rising costs.

Business Calendar

• 8am GMT: Swiss GDP report for Q3
• 3pm GMT: US construction spending data for August