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Japan's economy has recorded a drop for the initial time in six quarters, primarily driven by weakening overseas shipments because of recent American tariffs.

G7 Economic Rankings

Japan stands as the first Group of Seven economy to report an output shrinkage in the latest quarter.

As the US still needing to release its gross domestic product figures for the third quarter, the current Group of Seven economic rankings display:

• France: +0.5% expansion
• United Kingdom: +0.1%
• Canada: +0.1% (preliminary figure)
• German economy: zero growth
• Italian economy: no growth
• Japan: negative 0.4 percent

Tourism Stocks Decline during Political Rift with Beijing

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

Stocks in Japan's travel and consumer firms have dropped noticeably after China urged its citizens to avoid traveling to Japan.

This move by Chinese authorities intensified a diplomatic feud that was triggered by statements from Tokyo's new prime minister about the potential of deploying forces in the event of a hypothetical Chinese invasion on Taiwan.

The development caused a wave of selling across Japan's tourism-related stocks.

• Oriental Land shares dropped by 5.7 percent
• Isetan Mitsukoshi plummeted by 11.3%
• The national carrier fell by 3.75%

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

"Tourists from China represent roughly 25% of Japan's international visitors, making department stores, high-end shopping, and hospitality especially vulnerable."

GDP Contraction Breakdown

Japan's gross domestic product dropped by 0.4 percent in the July-September quarter, as manufacturers' exports were hit by tariffs imposed by the US this year.

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

Previously, the US administration had threatened Japan with a additional 25 percent tariff on its goods, 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 GDP shrank by 1.8 percent in the three months through September.

"Japan's economy was solid in the first half of this year and today's GDP data showed that momentum is halted temporarily.

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

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

Economic Calendar

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