Trump’s Tariffs Lead Japan to Slash Its Economic Growth Forecast-OxBig News Network

The growing list of major economies warning of weaker growth because of U.S. tariffs has a new member.

The Bank of Japan said on Thursday that it expects the Japanese economy to grow 0.5 percent in the fiscal year that started on April 1. That is a sharp downgrade from the 1.1 percent the central bank had forecast in January.

Explaining the change, the Bank of Japan cited “trade and other policies” leading to a slowdown in overseas economies and a decline in domestic corporate profits. The outlook was released alongside an announcement that the central bank would keep interest rates unchanged at 0.5 percent.

President Trump’s tariff threats are weighing on economic prospects around the world. In April, the International Monetary Fund lowered its 2025 outlook for all Group of 7 nations, including Germany and Japan, the world’s third- and fourth-largest economies, due largely to U.S. tariffs.

In Japan, Mr. Trump’s new taxes on imports — including a 25 percent tariff on imported cars — are already weighing heavily on the economy. The country is also bracing for potentially higher across-the-board levies of 24 percent, which the prime minister has said would cause a national crisis if they were not negotiated lower.

While Japan has shifted much of its manufacturing base overseas in recent decades, it still exports a substantial number of products, such as cars, to the United States. Items produced by Japanese companies outside Japan and then shipped to the United States also face the threat of higher tariffs.

Japanese companies — many of which are set to report full fiscal-year earnings later this month — are already warning of deteriorating earnings.

Last month, the Japanese operator of Uniqlo cut its profit forecast for the second half of the year through August by about $70 million, anticipating that tariffs will hurt its U.S. businesses. Uniqlo manufactures many of its products in countries including China, Vietnam, Indonesia and India that also face higher tariffs.

On Wednesday, the U.S. government said the American economy had shrunk in the first three months of the year. And a report on manufacturing activity in China showed that Chinese factories had experienced their sharpest monthly slowdown in over a year.

In Japan, the tariff disruption is exacerbating pressures on an already fragile economy.

With inflation slamming household staples and outpacing wage increases for most of the past three years, Japanese consumers have been reluctant to spend. Weak consumption caused Japan’s inflation-adjusted growth rate to slow to 0.1 percent in 2024, down from 1.5 percent the prior year.

U.S. tariffs are also complicating the Bank of Japan’s efforts to revert to more conventional monetary policies, as was underscored by Thursday’s decision to keep interest rates steady.

For decades, the central bank maintained interest rates at or below zero to nudge Japan’s economy out of a persistent cycle of weak growth and deflationary pressure. The aim of those rock-bottom rates was to encourage spending and generate moderate levels of inflation.

The Bank of Japan got part of its wish with a burst of inflation spurred by Covid-19 pandemic supply chain snags and geopolitical shocks. These higher prices enabled the central bank to raise interest rates for the first time in 17 years in March 2024. It raised rates again in July and January and had signaled an intention to continue the trend.

Now, Mr. Trump’s tariffs threaten the assumptions of sustained economic recovery and inflation upon which the central bank had said it would base its decisions to keep increasing rates.

Some economists expect that a tariff-induced economic slowdown could trigger a similar decline in prices. On Thursday, the Bank of Japan projected that Japan’s core prices, not counting fresh food, would rise by around 2.2 percent this fiscal year, compared with its previous forecast of 2.4 percent.