Japan’s central bank has issued a sobering economic forecast, reflecting growing concern over the impact of rising global trade tensions. On Thursday, the Bank of Japan (BOJ) halved its projected economic growth for 2025 to just 0.5%, a steep decline from the earlier estimate of 1.1% made in January. The central bank also downgraded its forecast for 2024, reducing it from 1.0% to 0.7%.
In its policy statement, the BOJ cited weakening global conditions as a key reason for the revision. “Japan’s economic growth is likely to moderate, as trade and policy uncertainties in other countries reduce external demand and corporate earnings,” the bank explained.
The statement emphasized the unpredictability surrounding international trade policies, noting that the shifting landscape makes it difficult to determine how global markets and prices will respond. “The outlook remains highly uncertain due to evolving trade dynamics and their effects on overseas economies,” the BOJ said.
Japan’s downgrade follows increasing concerns from major economies over trade frictions stemming from new tariffs and protectionist policies. Though Japan is a long-time ally of the United States, it has not been immune to the ripple effects of the U.S. administration’s confrontational trade stance.
President Donald Trump, speaking at a recent town hall, claimed that preliminary agreements with Japan, South Korea, and India were in place, potentially leading to reduced tariffs. However, details remain vague and no concrete trade pacts have been finalized. Trump downplayed the urgency of finalizing deals, suggesting that the United States holds more leverage in negotiations: “They want us. We don’t need them,” he said.
Despite the President’s remarks, experts remain skeptical about the likelihood of swift and comprehensive trade agreements. The complexity of modern trade deals often requires months—or even years—of negotiation. The U.S. has stated it is actively engaging in talks with over a dozen countries, and may soon release memoranda outlining the scope of future negotiations.
The BOJ’s announcement came just one day after the U.S. government revealed that its own economy had contracted slightly in the first quarter of the year. The slowdown was attributed to weakening consumer spending and a surge in imports, as businesses rushed to stock up on goods before new tariffs took effect. When imports exceed exports, the imbalance negatively affects gross domestic product (GDP), which appears to have been the case in early 2025.
Meanwhile, China reported a significant drop in factory activity in April, marking the sharpest decline in over a year. This decrease is largely tied to steep tariffs imposed by the United States, as well as retaliatory measures taken by Beijing. The downturn highlights how trade disputes are having real-time effects on global manufacturing and supply chains.
The International Monetary Fund (IMF) has also voiced concern in recent months, warning that prolonged trade disputes could hamper growth in both advanced and emerging economies. According to the IMF, the global trade climate—marked by tariffs, counter-tariffs, and diplomatic tensions—presents a significant threat to continued economic stability.
With Japan’s growth outlook now dampened and other major economies facing pressure, the message is clear: prolonged trade tensions are taking a toll, and coordinated international action may be needed to reverse the trend.
