Japan's Economy Contracts in Q3 Amid US Tariffs and China Travel Advisory
Japan's economy experienced a contraction in the third quarter, with GDP shrinking 0.4% quarter-on-quarter, marking the first decline in six quarters. Exports fell by 1.2% QoQ and were 4.5% lower than the previous year, impacted by US tariffs. The annualised real GDP decreased by 1.8%, slightly better than economists' median forecast of a 2.4% drop. Private demand also declined by 0.3% QoQ.
The country's tourism sector was hit by a travel advisory from China amid tensions regarding Taiwan. Chinese visitors, who account for about 25% of inbound tourists, reduced their travel to Japan following diplomatic friction triggered by comments from Tokyo's Prime Minister Sanae Takaichi. This led to declines in tourism-related stocks: Oriental Land fell 5.7%, Isetan Mitsukoshi dropped 11.3%, and Japan Airlines lost 3.75%.
In the context of trade relations, US former President Donald Trump had threatened 25% tariffs on Japanese goods in April, which were reduced to 15% in July after a trade deal. More recently, Trump lowered tariffs on US food imports such as beef, tomatoes, coffee, and bananas due to concerns about rising costs.
