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Japan's economy has experienced a contraction for the first time in six quarters, largely caused by weakening overseas shipments as a result of newly imposed US tariffs.

Group of Seven Growth Standings

Japan has become the initial Group of Seven country to report an economic contraction in the most recent quarter.

As the United States yet to publish its GDP figures for the third quarter, the current Group of Seven growth leaderboard indicate:

• France: +0.5% quarterly growth
• United Kingdom: +0.1%
• Canada: +0.1% (preliminary figure)
• German economy: 0%
• Italian economy: 0%
• Japanese economy: -0.4%

Travel Stocks Decline amid Political Rift with China

Alongside the economic contraction, Japan is dealing with an growing diplomatic tension with China regarding Taiwan.

Shares in Japan's tourism and consumer companies have fallen noticeably after China urged its nationals to refrain from traveling to Japan.

This move by Chinese authorities intensified a political dispute that was triggered by remarks from Tokyo's recently appointed prime minister about the possibility of sending troops in the event of a potential Chinese attack on Taiwan.

The situation led to a wave of selling across Japanese tourism-related stocks.

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

"The China-Japan tension over Taiwan and China's travel warning discouraging visits to Japan brings near-term challenges for consumer-facing sectors.

"Chinese visitors represent roughly 25 percent of Japan's international visitors, making retail outlets, high-end shopping, and tourism services particularly vulnerable."

GDP Decline Details

Japanese gross domestic product declined by 0.4% in the third quarter, as industrial overseas shipments were impacted by duties imposed by the United States this year.

Exports were a major driver of the decline, falling by 1.2 percent compared with the previous quarter, and were 4.5% lower than a the same period last year.

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

Consumer spending also fell, by 0.3% compared to the previous quarter.

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

"The Japanese economic situation was stable in the first half of this year and today's GDP figures showed that momentum is paused temporarily.

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

The US administration has recently recognized the effect of tariffs on US consumers, reducing tariffs on imported food products including beef, tomatoes, beverages and fruits amid increasing concerns about increasing costs.

Economic Calendar

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