Citi has revised its economic projections for Japan, lowering the country’s 2025 GDP growth forecast to 0.9%—down from an earlier estimate of 1.4%—citing heightened risks from U.S. trade policies and delayed monetary tightening by the Bank of Japan (BOJ). The investment bank also adjusted its 2026 growth forecast to 0.8%, reduced from 1.1%, while predicting the BOJ will postpone interest rate hikes until March 2026, a significant delay from prior expectations of mid-2025. The central bank’s terminal rate is projected to remain steady at 1.5%. The revisions reflect growing economic instability linked to former U.S. President Donald Trump’s proposed tariff escalations. While a planned 24% reciprocal tariff on Japan has been temporarily paused for 90 days, broader measures—including a universal 10% levy, a 25% auto tariff, and "extraordinarily high" duties targeting China—are expected to amplify global economic pressures. Japan is anticipated to face direct hits to export demand, compounded by weaker capital spending and spillover effects from slowing growth in China and other major economies. Despite these challenges, Citi does not foresee a recession in Japan. Private consumption is projected to stay resilient, supported by another round of strong annual spring wage increases. Additionally, Japan’s core consumer price index (CPI) is still forecast to rise by 2.5% in 2025, reflecting sustained inflationary pressures. The resurgence of U.S.-China trade tensions adds further uncertainty. Trump’s administration recently deferred reciprocal tariffs but escalated penalties on Chinese imports to a staggering 145%, prompting retaliatory measures from Beijing. As the world’s two largest economies reignite their trade war, Japan—with significant export exposure to both—faces dual risks of diminished demand and potential supply chain disruptions. Analysts warn that prolonged trade friction could deepen economic headwinds for Japan and the broader global market in the coming years.