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Japan's economy has recorded a drop for the initial time in a year and a half, primarily driven by declining exports as a result of newly imposed US tariffs.

G7 Economic Standings

The Japanese economy stands as the first G7 country to disclose an GDP decline in the latest three-month period.

As the United States still needing to publish its gross domestic product data for the third quarter, the current Group of Seven growth rankings display:

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

Tourism Shares Slump during Political Dispute with Beijing

Alongside the GDP decline, Japan is dealing with an escalating diplomatic conflict with China concerning Taiwan.

Shares in Japanese travel and consumer firms have fallen sharply after China advised its citizens to refrain from visiting to Japan.

This move by Beijing escalated a political dispute that was initiated by comments from Tokyo's new PM about the potential of deploying forces in the case of a potential Chinese invasion on Taiwan.

The development led to a surge of selling across Japan's tourism-related shares.

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

"The ongoing tension over Taiwan and Beijing's travel warning advising against visits to Japan brings short-term difficulties for retail and hospitality sectors.

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

GDP Contraction Details

Japanese GDP dropped by 0.4 percent in the July-September quarter, as industrial overseas shipments were hit by duties levied by the US this year.

Exports were a key factor of the decline, dropping by 1.2% compared with the previous quarter, and were 4.5% lower than a the same period last year.

Earlier this year, the American government had proposed Japan with a additional 25 percent tariff on its products, which was later reduced to 15 percent when the two countries reached a trade deal.

Consumer spending also declined, by 0.3% 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 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 returning on a gradual growth trend going forward."

The White House has recently acknowledged the effect of tariffs on Americans, lowering duties on food imports including beef, produce, coffee and fruits amid increasing concerns about increasing costs.

Economic Calendar

• 08:00 Greenwich Mean Time: Swiss GDP report for Q3
• 15:00 Greenwich Mean Time: US construction spending data for August