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Japan's economy has experienced a decline for the first time in a year and a half, mainly caused by declining overseas shipments as a result of newly imposed US trade duties.

Group of Seven Growth Standings

The Japanese economy stands as the initial G7 country to report an output shrinkage in the latest quarter.

As the United States still needing to release its gross domestic product data for the third quarter, the current G7 growth standings display:

• The French economy: 0.5 percent quarterly growth
• UK: 0.1 percent
• Canadian economy: 0.1 percent (preliminary figure)
• Germany: 0%
• Italian economy: 0%
• Japanese economy: negative 0.4 percent

Tourism Stocks Slump during Political Rift with China

In addition to the GDP decline, Japan is experiencing an intensifying political conflict with China regarding Taiwan.

Stocks in Japan's travel and retail firms have fallen noticeably after China recommended its nationals to refrain from visiting to Japan.

This move by Beijing intensified a political dispute that was sparked by remarks from Japan's new prime minister about the possibility of sending troops in the event of a hypothetical Chinese invasion on Taiwan.

The development led to a wave of selling across Japanese leisure shares.

• Oriental Land shares fell by 5.7%
• The department store chain tumbled by 11.3%
• The national carrier declined by 3.75 percent

"The ongoing tension over Taiwan and Beijing's advisory advising against visits to Japan brings short-term difficulties for consumer-facing sectors.

"Tourists from China account for roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and tourism services especially vulnerable."

GDP Contraction Details

Japan's GDP declined by 0.4% in the third quarter, as manufacturers' overseas shipments were impacted by tariffs imposed by the US this year.

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

Previously, the American government had threatened Japan with a new 25 percent tariff on its products, which was later lowered to 15 percent when the two nations concluded a trade deal.

Consumer spending also fell, by 0.3 percent quarter-on-quarter.

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

"Japan's economy was solid in the first half of this year and the latest GDP data showed that growth is paused for now.

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

The US administration has recently acknowledged the effect of tariffs on Americans, lowering duties on food imports including meat, produce, coffee and bananas amid increasing concerns about increasing costs.

Economic Agenda

• 08:00 Greenwich Mean Time: Switzerland GDP report for Q3
• 3pm GMT: US construction spending data for August