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Japan's economy has recorded a contraction for the initial time in six quarters, largely caused by declining exports because of recent US trade duties.

Group of Seven Economic Standings

Japan has become the first G7 country to announce an output shrinkage in the latest three-month period.

As the US yet to release its GDP figures for the third quarter, the present G7 economic leaderboard show:

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

Tourism Shares Slump amid Political Rift with China

Alongside the economic contraction, Japan is dealing with an growing diplomatic conflict with China regarding Taiwan.

Shares in Japan's tourism and consumer companies have dropped sharply after China urged its nationals to avoid traveling to Japan.

This decision by Chinese authorities escalated a diplomatic feud that was initiated by statements from Tokyo's new prime minister about the potential of deploying troops in the case of a potential Chinese attack on Taiwan.

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

• Oriental Land stock fell by 5.7 percent
• Isetan Mitsukoshi tumbled by 11.3 percent
• Japan Airlines fell by 3.75 percent

"The ongoing dispute over Taiwan and China's advisory advising against travel to Japan creates near-term headwinds for consumer-facing sectors.

"Chinese visitors account for roughly 25 percent of Japan's international visitors, making department stores, high-end shopping, and hospitality especially vulnerable."

Economic Decline Breakdown

Japanese GDP declined by 0.4% in the third quarter, as industrial exports were affected by tariffs imposed by the US recently.

Overseas shipments were a primary factor of the contraction, dropping by 1.2 percent compared with the previous quarter, and were 4.5% lower than a year ago.

Previously, the US administration had threatened Japan with a new 25% tariff on its products, which was later lowered to 15 percent when the two countries concluded a trade agreement.

Private demand also fell, by 0.3% quarter-on-quarter.

On an annualized basis, Japan's GDP contracted by 1.8% in the quarter through September.

"The Japanese economic situation was strong in the first half of this year and the latest GDP figures showed that momentum is paused for now.

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

The White House has lately acknowledged the effect of tariffs on Americans, reducing duties on food imports including meat, tomatoes, beverages and bananas amid growing concerns about rising costs.

Economic Calendar

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