The Bank of Japan (BoJ) has revised its economic growth forecasts downward for 2025 and 2026.

This change is due to uncertainties related to trade tariffs imposed by the United States and retaliatory measures from affected countries.

The decision was announced on May 1, 2025, with the central bank maintaining interest rates at approximately 0.5%.

Japan’s GDP is now expected to grow by 0.5% in fiscal 2025, a decrease from the previous estimate of 1.1%.

For fiscal 2026, the forecast has been adjusted to 0.7%, down from 1.0%.

🔗 Source: Agence France-Presse

🧠 Food for thought

1️⃣ Historical echoes: Japan has navigated significant US tariff conflicts before

The current situation mirrors the 1980s US-Japan trade tensions, when America viewed Japan as an economic threat with accusations of unfair trade practices and intellectual property theft 1.

During that period, the Reagan administration initiated a trade war with Japan that included the imposition of 100% tariffs on $300 million of Japanese imports in 1987 1.

Those trade measures, combined with the 1985 Plaza Accord that devalued the dollar against the yen, contributed to Japan’s economic slowdown and what became known as the “lost decade” of stagnation 1.

The key difference today is that Japan’s economy is in a more vulnerable position after decades of slow growth, with the central bank having only recently begun to normalize interest rates after years of ultra-loose monetary policy 2.

Governor Ueda’s characterization of Trump’s tariffs as being of “unprecedented scale” suggests that the current measures could potentially have significant impacts, though the historical context provides a cautionary precedent 2.

2️⃣ Japan’s export-oriented economy faces multifaceted vulnerability to trade disruptions

Japan’s economic vulnerability to US tariffs extends beyond direct exports, with the Bank of Japan’s downgrade reflecting concerns about impacts through multiple channels 3.

The automotive sector represents a particularly vulnerable point, as it constituted approximately 37% of Japan’s exports to the US in 2017 and now faces potential 25% tariffs 32.

Recent Bank of Japan developments