Japan slashes growth forecast as trade tensions rise

On Thursday, the Bank of Japan significantly lowered its expectations for the growth of the country's gross domestic product in 2025. The new forecast predicts growth at just 0.5%, a decrease from the earlier projection of 1.1% announced in January. The Japanese central bank also reduced the growth forecast for next year to 0.7%, down from the previous projection of 1.0%.

In an official statement, the Bank of Japan explained the reasons for this decision: "Japan's economic growth is likely to slow down due to trade policy and other actions in individual jurisdictions that are leading to the slowdown of foreign economies, a decrease in domestic corporate profits, and other factors."

The Bank of Japan also noted that the volatile situation regarding the trade war significantly complicates accurate forecasting. "There is no certainty as to how trade policy and other actions in individual jurisdictions will evolve and how foreign economic activities and prices will react," the statement emphasized.

Japan is at the top of the list of countries with which the Trump administration is negotiating a trade agreement. During a meeting with voters on Wednesday on NewsNation television, President Trump stated that he has reached "potential" trade agreements with Japan, South Korea, and India that would replace the current "mutual" tariffs. However, he did not provide any details about these new agreements.

Trump seized the opportunity to use his well-known rhetoric. He asserted that the other party is dependent on the United States, while the U.S. does not share the same need for them.

He also added that he is not in a hurry to finalize any deal. Experts indicate that it is unlikely that the United States and Japan, despite their allied relationship, will be able to quickly reach a comprehensive new trade agreement.

The lowered forecast for Japan came a day after the U.S. Department of Commerce reported that the trade war had negatively impacted economic growth, leading the U.S. economy to a slight contraction in the first quarter. Consumer spending slowed during this period, and businesses accumulated imported goods before the tariffs were implemented. As a result, imports exceeded exports, hindering GDP growth.

Also on Wednesday, China reported that its industrial activity in April shrank at the fastest pace in 16 months, due to massive U.S. tariffs on Chinese goods and significant retaliatory Chinese tariffs on U.S. imports.

Last month, the International Monetary Fund warned that a global trade war would curb economic growth, particularly in the United States. According to analysts, the prolonged trade conflict between the world's largest economies could lead to a long-term slowdown in the global economy.