Investing.com-- Citi slashed its outlook for Japanese economic growth in 2025, citing the impact of increased U.S. trade tariffs, with the Bank of Japan also no longer expected to raise interest rates this year.
Citi said it expects Japan’s gross domestic product to grow 0.9% in 2025, down from prior forecasts of 1.4%, while 2026 GDP is expected at 0.8%, down from a prior forecast of 1.1%.
Citi said that it now expects the BOJ to only hike interest rates by March 2026, compared to prior expectations for a June 2025 cut, although the BOJ’s terminal rate is expected to remain at 1.5%.
The investment bank cited heightened economic ructions from U.S. President Donald Trump’s increased trade tariffs. While Trump’s 24% tariff on Japan was postponed by 90 days, his 10% universal tariff, coupled with a 25% automobile tariff and “exceptionally high” tariffs on China set the stage for more economic headwinds in the coming months.
Japan will be directly affected by a drop in export demand, Citi said. But pressure on the global economy, especially China, and an ensuing slowdown in capital spending will also dampen growth.
Still, Citi said it did not expect a Japanese recession, with personal consumption expected to remain strong on another round of bumper spring wage hikes.
Citi also still expects Japanese core consumer price index inflation to rise 2.5% in 2025.
Trump’s tariff plans ramped up uncertainty over the global economy. While the U.S. President postponed his reciprocal tariff plans by 90 days, he proceeded with higher tariffs on China- at a staggering 145%.
China retaliated with its own measures, marking the start of a renewed trade war between the world’s two largest economies.
Japan has large export exposure to both countries, and is likely to face slowing demand and potential supply chain disruptions as the trade war worsens.