New members are on the list of growing major economies warning that growth is weak due to US tariffs.
The Bank of Japan said Thursday it expects the Japanese economy to grow by 0.5% for the fiscal year that began on April 1. This is a sharp downgrade from the 1.1% forecast by the central bank in January.
Explaining the changes, the Bank of Japan cited “trade and other policies,” leading to a slower overseas economies and a decline in domestic corporate profits. The outlook was released with an announcement that central banks would not change interest rates to 0.5%.
President Trump's tariff threat places emphasis on economic outlook around the world. In April, the International Monetary Fund lowered its 2025 outlook for all groups in seven countries, including Germany and Japan, the world's third largest economy, primarily due to US tariffs.
In Japan, new taxes on Trump's imports (including a 25% tariff on imported cars) are already heavily on the economy. The country also has a potentially high 24% tax collection on ships, so the prime minister said if they are not negotiated lower, it will cause a national crisis.
Japan has shifted many of its overseas manufacturing bases in recent decades, but it still exports a considerable number of products, such as automobiles, to the United States. Items produced by Japanese companies outside of Japan and subsequently shipped to the US also face higher tariff threats.
Japanese companies – many of them will report revenue for the entire fiscal year later this month, but have already warned of a deterioration in revenue.
Last month, a Japanese operator at Uniqlo reduced its profit forecast for the second half of August through August, predicting tariffs would hurt US businesses. Uniqlo manufactures many products in countries including China, Vietnam, Indonesia and India, and faces higher tariffs.
On Wednesday, the US government said the US economy had contracted during the first three months of the year. Also, reports on manufacturing activities in China showed that factories in China experienced the most sharp monthly slowdown in more than a year.
In Japan, tariff disruptions exacerbate pressure on an already vulnerable economy.
For most of the past three years, Japanese consumers have been reluctant to spend as inflation has denounced household staples and outweighed wage increases. Weak consumption has slowed Japan's inflation-adjusted growth rate to 0.1% in 2024, down from 1.5% in the previous year.
U.S. tariffs also complicate the Bank of Japan's efforts to return to more general monetary policy, as highlighted by Thursday's decision to stabilize interest rates.
For decades, central banks kept below zero interest rates below zero, tweaking the Japanese economy from a sustained cycle of weak growth and deflationary pressures. The purpose of these rock bottom charges was to encourage spending and generate moderate levels of inflation.
The Bank of Japan has gained part of its wish with an inflation explosion spurred by the snags and geopolitical shocks in the Covid-19 pandemic supply chain. These higher prices allowed the central bank to raise interest rates for the first time in 17 years in March 2024. It had intended to raise interest rates again in July and January, indicating its intention to continue the trend.
Now, Trump's tariffs threaten the assumption of sustained economic recovery and inflation, and he said it was based on the central bank's decision to maintain the rate of growth.
Some economists expect a tariff-induced economic slowdown could lead to similar drops in prices. On Thursday, the Bank of Japan predicted that Japan's core prices, which are not counting fresh food, would rise by about 2.2% this fiscal year compared to previous 2.4% forecasts.
