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The Japanese economic system has shown a decline for the first time in a year and a half, mainly caused by falling overseas shipments due to recent US trade duties.

Group of Seven Growth Rankings

Japan has become the first G7 economy to report an output shrinkage in the most recent quarter.

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

• France: +0.5% quarterly growth
• United Kingdom: 0.1 percent
• Canada: 0.1 percent (provisional estimate)
• German economy: zero growth
• Italy: no growth
• Japanese economy: -0.4%

Travel Stocks Slump amid Diplomatic Rift with Beijing

In addition to the economic contraction, Japan is dealing with an escalating diplomatic dispute with China regarding Taiwan.

Shares in Japan's tourism and consumer firms have dropped significantly after China advised its nationals to avoid visiting to Japan.

This action by Beijing escalated a political dispute that was initiated by statements from Japan's new PM about the possibility of sending troops in the case of a hypothetical Chinese attack on Taiwan.

The development triggered a wave of selling across Japanese leisure stocks.

• Oriental Land stock dropped by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3 percent
• The national carrier declined by 3.75%

"The ongoing dispute over Taiwan and Beijing's advisory advising against visits to Japan introduces short-term headwinds for retail and hospitality sectors.

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

GDP Contraction Breakdown

Japan's GDP declined by 0.4 percent in the July-September quarter, as manufacturers' overseas shipments were hit by duties imposed by the United States recently.

Exports were a major driver of the contraction, falling by 1.2% compared with the April-June quarter, and were 4.5% lower than a the same period last year.

Previously, the American government had proposed Japan with a new 25 percent tariff on its goods, which was later reduced to 15% when the two countries reached a trade agreement.

Consumer spending also fell, by 0.3% quarter-on-quarter.

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

"Japan's economy was solid in the initial six months of this year and today's GDP data showed that growth is halted for now.

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

The White House has lately recognized the impact of tariffs on US consumers, lowering tariffs on imported food products including meat, produce, coffee and fruits amid growing concerns about rising costs.

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