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Japan's economy has shown a contraction for the first time in six quarters, mainly driven by weakening overseas shipments because of newly imposed American tariffs.

G7 Economic Leaderboard

The Japanese economy has become the initial G7 country to announce an economic contraction in the previous three-month period.

With the US yet to release its GDP data for the third quarter, the present G7 economic leaderboard display:

• The French economy: 0.5 percent quarterly growth
• UK: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• Germany: 0%
• Italy: 0%
• Japanese economy: negative 0.4 percent

Travel Shares Slump during Diplomatic Rift with Beijing

Alongside the economic contraction, Japan is dealing with an growing political dispute with China regarding Taiwan.

Stocks in Japanese tourism and retail firms have fallen significantly after China advised its nationals to refrain from visiting to Japan.

This move by Chinese authorities escalated a political dispute that was initiated by remarks from Tokyo's recently appointed PM about the potential of deploying forces in the case of a hypothetical Chinese attack on Taiwan.

The development caused a surge of selling across Japanese leisure shares.

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

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

"Chinese visitors represent roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and hospitality especially vulnerable."

GDP Contraction Details

Japan's GDP dropped by 0.4% in the July-September quarter, as manufacturers' exports were affected by duties imposed by the US recently.

Overseas shipments were a primary factor of the contraction, dropping by 1.2 percent compared with the April-June quarter, and were 4.5% lower than a year ago.

Previously, the US administration had threatened 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 percent quarter-on-quarter.

On an annual basis, Japan's GDP shrank by 1.8% in the three months through September.

"The Japanese economic situation was solid in the first half of this year and today's GDP data showed that momentum is halted for now.

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

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

Business Agenda

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