Introduction: Japan’s economy contracts as exports are hit by US tariffs
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Donald Trump’s trade wars continue to bruise the global economy, dampening demand and weakening trade links.
Japan is the latest country to show the effects – its economy has shrunk for the first time in six quarters.
Japanese GDP fell by 0.4% in the July-September quarter, new official data shows, as its manufacturers’ exports were hit by the tariffs imposed by the US this year.
Exports were a key driver of the contraction; they fell by 1.2% compared with the April-June quarter, and were 4.5% lower than a year ago.
Back in April, Trump threatened Japan with a new 25% tariff on its goods at the US border, which was cut to 15% in July when the two countries reached a trade deal.
Private demand also fell, by 0.3% quarter-on-quarter.
On an annualised basis, Japan’s real gross domestic product shrank by 1.8% on an annualized basis in the three months through September. Although that’s better than the 2.4% fall which economists had expected, it could bolster new prime minister Sanae Takaichi’s case to compile an ambitious stimulus programme.
Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities says (via Bloomberg):
“Japan’s economy was solid in the first half of this year and today’s GDP showed that momentum is halted temporarily.
I expect Japan’s economy to be back on a moderate recovery trend going forward.”
The White House has belatedly woken up to the impact of tariffs on Americans (who pay the levies) too – late last week, Trump lowered the tariffs on food imports, including beef, tomatoes, coffee and bananas, amid growing concerns about rising costs.
The agenda
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8am GMT: Swiss GDP report for Q3
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10am GMT: European Commission releases Autumn 2025 Economic Forecast
-
3pm GMT: US construction spending data for August
Key events
A man convicted over a 2020 Twitter hack that compromised accounts of high-profile figures including former U.S. President Barack Obama has been ordered to repay £4.1m worth of Bitcoin, Reuters reports.
The hack, also involved the accounts of Joe Biden, Elon Musk, Bill Gates, Jeff Bezos and Apple.
Compromised accounts sent a series of tweets proposing a classic bitcoin scam: followers were told that if they transferred cryptocurrency to a specific bitcoin wallet, they would receive double the money in return….
The FTSE 100 share index has dipped this morning, moving further away from last week’s record highs.
The UK’s blue-chip share index is down 11 points, or 0.12%, at 9687 points. Luxury fashion group Burberry (-4.6%) are the top faller, as the dipomatic spat between Beijing and Tokyo threatens to hit spending by Chinese tourisms in Japan.
Richard Hunter, head of markets at interactive investor, says:
Burberry and to a lesser extent HSBC were under pressure given the tension in Asia, while the beleaguered WPP rose on some vague bid speculation arising from weekend reports.
Goldman Sachs: Buy UK government debt as unemployment rises
UK government bonds are stable this morning, after a selloff last Friday when news broke that chancellor Rachel Reeves had scrapped controversial plans to raise income tax.
News of the chancellor’s tax u-turn drove up the cost of borrowing, as investors worried that this month’s budget might create less fiscal headroom than the markets hoped.
Goldman Sachs are recommending buying UK government debt, predicting that bond prices will rise (pushing down interest rates, or yields).
They point out that increases in the unemployment rate typically lead to lower yields (higher bond prices) over time, telling clients:
The recent deterioration in the labour market points to further downside risk to UK yields, as labour market softness should translate into a stronger foundation for lower inflation in 2026, alongside ongoing disinflationary progress, and an upcoming contractionary budget.
As Goldman Sachs points out, historically, increases in the unemployment rate raise the risk of recession. The “Sahm rule”, an indicator developed by US economist Claudia Sahm, signals a recession if the rise in the unemployment rate over a 12-month period reaches a particular threshold.
They say:
As external MPC member Megan Greene has pointed out, the UK’s “Sahm Rule” threshold is around 0.75 – meaning a rise in the 3-month average unemployment rate from the lows of the trailing 12 months to above this level has been an indicator of recessions since 1975. The latest unemployment rate in the UK was 4.97%, and the rise in the “Sahm” indicator over the lows of the last 12m has been 0.71.
If the unemployment rate rises above 5.2% in the next three months, the recession threshold will be triggered.
WPP shares jump on takeover speculation
A flurry of takeover speculation has driven shares in advertising group WPP higher at the start of trading in London.
WPP’s shares are up 4.7%, leading the risers on the FTSE 100 share index, following reports that several potential suitors have considered a bid.
According to the Sunday Times, French rival Havas has held talks about WPP, while private equity firms Apollo and KKR have looked into a possible bid.
This interest comes after WPP’s share price fell to its lowest level since 1998 earlier this month, after it slashed its revenue guidance for the year and its new chief executive Cindy Rose said its recent performance has been “unacceptable”.
The Sunday Times reported:
It is not clear whether any formal bids for WPP will materialise. Bidders could seek to buy the company in its entirety, take large stakes in the business or attempt to pick off parts of the holding group.
It is understood there have been talks at a high level inside Havas, which is led by [billionaire Vincent] Bolloré’s son Yannick, about the potential for a deal involving WPP.
WPP’s share have fallen by almost two-thirds so far this year, as the company has been hit by fears that artificial intelligence tools will eat its revenues.
This has left the company vulnerable to being relegated from the FTSE 100 at the next quarterly reshuffle….
Swiss economy shrank 0.5% in Q3
Newsflash: Switzerland’s economy shrank in the third quarter of the year too!
Switzerland, which has also been badly hit by the Trump trade wars, has just reported that its economy shrank by 0.5% in July-September compared with the previous three months.
The downturn is being blamed on weakness in the chemical and pharmaceutical sectors, which were both hurt by the new tariffs imposed by Donald Trump this year.
Switzerland’s State Secretariat for Economic Affairs says:
Driven by a sharp decline in value added in the chemical and pharmaceutical sector, industry as a whole recorded negative growth. The services sector grew at a below-average rate.
Industry as a whole declined while the services sector grew at a below-average rate, the government added.
This will add to the relief in Zurich that they have reached a deal with Trump that cuts tariffs on Switzerland from 39% to 15% as part of a new trade pact.
G7 growth leaderboard
Japan is the first of the G7 countries to report its economy contracted in the last quarter.
With the US yet to report GDP data for Q3 2025, here’s the leaderboard:
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France: + 0.5% quarterly growth
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UK: +0.1%
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Canada: +0.1% (provisional estimate)
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Germany: 0%
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Italy: 0%
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Japan: -0.4%
Japan’s tourism shares slump as diplomatic rift with China deepens
As well as news that its economy shrank in the last quarter, Japan has also been hit by an escalating dispute with China over Taiwan.
Shares in Japanese tourism and retail companies have fallen today, after China advised its citizens to avoid travelling to Japan.
This move by Beijing escalated a diplomatic feud sparked by comments from Tokyo’s new prime minister, Sanae Takaichi, on the possibility of deploying forces in the event of a hypothetical Chinese attack on Taiwan.
This triggered a wave of selling across Japanese leisure stocks.
Shares in Oriental Land, which operates Tokyo Disneyland, have fallen by 5.7% today. Department store chain Isetan Mitsukoshi, which makes substantial sales to Chinese visitors, has tumbled by 11.3%.
Travel stocks were hit too, with Japan Airlines falling 3.75%.
Masahiko Loo, a senior fixed income strategist at State Street Investment Management in Tokyo, explains:
“The China–Japan dispute over Taiwan and Beijing’s advisory discouraging travel to Japan introduces near-term headwinds for consumer-facing sectors.
“Chinese visitors account for roughly 25% of Japan’s inbound traffic, making department stores, luxury retail, and hospitality particularly vulnerable.”
Introduction: Japan’s economy contracts as exports are hit by US tariffs
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Donald Trump’s trade wars continue to bruise the global economy, dampening demand and weakening trade links.
Japan is the latest country to show the effects – its economy has shrunk for the first time in six quarters.
Japanese GDP fell by 0.4% in the July-September quarter, new official data shows, as its manufacturers’ exports were hit by the tariffs imposed by the US this year.
Exports were a key driver of the contraction; they fell by 1.2% compared with the April-June quarter, and were 4.5% lower than a year ago.
Back in April, Trump threatened Japan with a new 25% tariff on its goods at the US border, which was cut to 15% in July when the two countries reached a trade deal.
Private demand also fell, by 0.3% quarter-on-quarter.
On an annualised basis, Japan’s real gross domestic product shrank by 1.8% on an annualized basis in the three months through September. Although that’s better than the 2.4% fall which economists had expected, it could bolster new prime minister Sanae Takaichi’s case to compile an ambitious stimulus programme.
Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities says (via Bloomberg):
“Japan’s economy was solid in the first half of this year and today’s GDP showed that momentum is halted temporarily.
I expect Japan’s economy to be back on a moderate recovery trend going forward.”
The White House has belatedly woken up to the impact of tariffs on Americans (who pay the levies) too – late last week, Trump lowered the tariffs on food imports, including beef, tomatoes, coffee and bananas, amid growing concerns about rising costs.
The agenda
-
8am GMT: Swiss GDP report for Q3
-
10am GMT: European Commission releases Autumn 2025 Economic Forecast
-
3pm GMT: US construction spending data for August
