A growing number of major economies warn of weak growth due to U.S. tariffs.
Bank of Japan said on Thursday it expects Japan's economy to grow by 0.5% in the fiscal year that began April 1. 1.1% downgrade from central bank forecast.
The Bank of Japan explained the change, citing “trade and other policies” that led to slowing overseas economies and falling domestic corporate profits. The outlook is released along with an announcement that the central bank will keep interest rates unchanged by 0.5%.
President Trump's tariff threat is weighing economic prospects around the world. In April, the IMF lowered its 2025 outlook for all seven countries, including Germany and Japan, the world's third and fourth largest economy, thanks in large part to U.S. tariffs.
In Japan, Mr. Trump's new tax on imports, including a 25% tariff on imported cars, has put a lot of pressure on the economy. The country is also supporting a possible 24% full tax, with the prime minister saying it would create a national crisis if negotiations are not conducted.
Although Japan has moved most of its manufacturing bases overseas in recent decades, it still exports a large number of products, such as cars, to the United States. Items produced by Japanese companies other than Japanese companies, which are then shipped to the United States, are also threatened by higher tariffs.
Japanese companies (many of which will report full-year earnings later this month – have warned of deteriorating revenue.
Last month, Uniqlo's Japanese operators cut their profit forecast by about $70 million in the second half of August, with tariffs expected to damage its U.S. operations. Uniqlo produces many products in countries including China, Vietnam, Indonesia and India, which also face higher tariffs.
The U.S. government said on Wednesday that the U.S. economy shrank in the first three months of the year. Reports on China's manufacturing activity show that Chinese factories have experienced the sharpest monthly slowdown in more than a year.
In Japan, tariff damage has exacerbated already fragile economic pressure.
For much of the past three years, Japanese consumers are reluctant to spend as inflation hits household staples and exceeds wages. Weak consumption has caused Japan's inflation-adjusted growth rate to 0.1% in 2024, down from 1.5% in the previous year.
U.S. tariffs have also complicated the efforts of Japanese banks to resume more conventional monetary policies, as highlighted by Thursday's decision to keep interest rates stable.
For decades, central banks have kept interest rates below zero to keep Japan's economy going through a continuous cycle of sustained growth and deflationary pressures. Those rock minimums are intended to encourage spending and generate moderate inflation.
Bank of Japan has gained some of its wishes, and Kuved's supply chain was in trouble on the 19th and geopolitical shocks stimulated inflation. These higher prices allow central banks to raise interest rates for the first time in March 17, 2024. It raised interest rates again in July and January and said it intends to continue the trend.
Now, Mr. Trump’s tariffs threaten the assumption that the central bank will say it will continue economic recovery and inflation based on its decision to maintain interest rates.
Some economists expect a slowdown caused by tariffs to lead to prices falling. On Thursday, the Bank of Japan expects Japan's core prices (not counting fresh food) to rise about 2.2% in the current fiscal year, compared with a previous forecast of 2.4%.
