Citi Cuts Japan 2025 Growth Outlook Amid Rising U.S. Tariffs and Global Tensions

Citi has lowered its 2025 economic growth forecast for Japan, citing escalating U.S. trade tariffs and weakening global demand. The investment bank now expects Japan’s GDP to grow just 0.9% in 2025, down from its previous 1.4% estimate. The 2026 GDP forecast was also trimmed to 0.8% from 1.1%.

The revised outlook reflects increased trade tensions under U.S. President Donald Trump’s renewed tariff strategy. Though a 24% tariff on Japanese goods was delayed by 90 days, a 10% blanket tariff and a 25% automobile tariff are moving forward. In addition, Trump’s 145% tariff on Chinese imports has triggered retaliation from Beijing, sparking a new phase in the U.S.-China trade war.

Japan, with its strong export ties to both countries, is facing growing risks. Citi noted that declining export demand, slower capital spending, and global economic uncertainty—especially in China—are set to weigh on Japan’s growth prospects. Despite these challenges, a recession in Japan is not expected. Citi forecasts resilient personal consumption, supported by anticipated robust spring wage increases.

Citi also revised its interest rate expectations, predicting that the Bank of Japan will now delay its next rate hike until March 2026, a shift from earlier projections of a June 2025 increase. The BOJ’s terminal rate is still projected to peak at 1.5%.

Inflation in Japan remains a key concern, with Citi expecting core consumer prices to rise 2.5% in 2025.

The evolving trade landscape poses significant challenges to Japan’s export-driven economy, with potential supply chain disruptions adding further pressure. As geopolitical tensions rise, Japan’s ability to navigate shifting global trade policies will be critical to sustaining economic stability.