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Japan's economy has experienced a contraction for the first time in a year and a half, largely caused by falling overseas shipments because of recent American trade duties.

Group of Seven Growth Standings

The Japanese economy has become the initial G7 economy to report an output shrinkage in the most recent three-month period.

As the US still needing to publish its GDP figures for the third quarter, the current Group of Seven growth rankings show:

• The French economy: +0.5% expansion
• United Kingdom: +0.1%
• Canada: +0.1% (provisional estimate)
• German economy: zero growth
• Italy: no growth
• Japanese economy: negative 0.4 percent

Travel Stocks Decline amid Political Rift with Beijing

In addition to the economic contraction, Japan is dealing with an intensifying diplomatic tension with China concerning Taiwan.

Shares in Japan's tourism and retail firms have fallen sharply after China urged its residents to avoid visiting to Japan.

This action by Chinese authorities escalated a diplomatic feud that was initiated by remarks from Tokyo's new PM about the possibility of deploying troops in the event of a potential Chinese invasion on Taiwan.

The development led to a surge of selling across Japanese tourism-related stocks.

• The Tokyo Disneyland operator shares dropped by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3%
• The national carrier declined by 3.75%

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

"Tourists from China represent roughly 25 percent of Japan's inbound traffic, making department stores, high-end shopping, and hospitality especially at risk."

Economic Contraction Details

Japan's GDP dropped by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were affected by tariffs levied by the US this year.

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

Earlier this year, the US administration had threatened Japan with a new 25% tariff on its goods, which was later lowered to 15% when the two countries reached a trade deal.

Consumer spending also declined, by 0.3 percent compared to the previous quarter.

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

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

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

The White House has lately acknowledged the impact of tariffs on Americans, lowering duties on food imports including meat, tomatoes, coffee and bananas amid increasing concerns about increasing costs.

Business Calendar

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