Japan Slashes Growth Forecast as U.S. Trade War Sends Ripples Through Global Economy

Another American ally raises the alarm as the escalating trade war impacts growth, trade talks, and business confidence.

Japan is the latest U.S. ally to issue a sobering economic warning, slashing its growth forecast as global trade tensions continue to mount.

On Thursday, the Bank of Japan downgraded its 2025 GDP growth forecast from 1.1% to just 0.5%. The outlook for 2024 was also revised downward, from 1.0% to 0.7%.

“Japan’s economic growth is likely to moderate, as trade and other policies in each jurisdiction lead to a slowdown in overseas economies and to a decline in domestic corporate profits,” the central bank said in its statement.

It added that the uncertain direction of global trade policies makes future projections especially difficult:

“It is extremely uncertain how trade and other policies… will evolve and how overseas economic activity and prices will react to them.”

Japan is among several countries the Trump administration claims to be negotiating new trade agreements with. At a recent NewsNation town hall, former President Trump said he had reached “potential” deals with Japan, South Korea, and India, promising an end to harsh “reciprocal” tariffs.

However, he offered few details and showed little urgency, stating:

“They want us. We don’t need them.”

Despite the talk of new trade deals, experts say it’s unlikely that the U.S. and Japan could hammer out a comprehensive agreement anytime soon. Still, the administration claims it’s in talks with over a dozen nations, with memoranda of understanding expected in the coming weeks.

Japan’s warning follows troubling new data from both the U.S. and China, revealing the broader impact of trade tensions:

• U.S. Economy Contracts Slightly:
  The Commerce Department reported a minor contraction in U.S. economic growth during the first quarter. Consumer spending slowed, and companies rushed to import goods ahead of planned tariffs, causing imports to exceed exports, which dragged GDP into negative territory.
• China’s Manufacturing Slumps:
  On the same day, China announced that factory activity in April fell at its fastest rate in 16 months, citing the impact of U.S. tariffs and Beijing’s own retaliatory measures on American imports.

Just last month, the International Monetary Fund (IMF) issued a broad warning: the ongoing trade war threatens to stifle global growth, with the U.S. economy especially vulnerable to prolonged conflict and uncertainty.

Japan’s downgraded forecast underscores a growing consensus among global institutions: the trade war is no longer just a political tactic — it’s becoming an economic threat.

With no clear timeline for new agreements and rising instability in international markets, businesses and economies around the world are bracing for more uncertainty in the months ahead.