IMF Cuts Japan's Growth Forecast as Trump Tariffs Bite

• The International Monetary Fund cut its economic growth forecast for Japan and projected the central bank would lift interest rates at a slower-than-expected pace due to the impact of higher U.S. tariffs.
• The downgrade highlights the damage U.S. President Donald Trump's sweeping tariffs could inflict on Japan's export-reliant economy and comes ahead of the Bank of Japan's two-day policy meeting concluding on May 1. "The effect of tariffs announced on April 2 and associated uncertainty offset the expected strengthening of private consumption with above-inflation wage growth boosting household disposable income," the IMF highlighted.
• Japan's economy is expected to grow 0.6% in 2026, down 0.2 points from its forecast made in January. The Bank of Japan’s (BOJ) policy rates are expected to be lifted "at a slower pace than assumed in October 2024", the report said without elaborating when the next rate hike could come.
• The central bank is expected to gradually raise interest rates over the medium term "toward a neutral setting of about 1.5%", or the level consistent with keeping inflation anchored at its 2% target, the IMF noted.
• The BOJ last year ended a decade-long massive stimulus programme and raised interest rates to 0.5% in January on the view that Japan was on the cusp of sustainably achieving its 2% inflation target. While Governor Kazuo Ueda has signalled the BOJ's readiness to keep raising rates, Trump's tariff decisions have complicated its decision on when and how far it could hike.
• Trump has hit Japan with 24% tariffs on its exports to the U.S., although, like most of his levies, they have been paused until early July. A 10% universal rate stays in place, as does a 25% duty on cars, which is expected to hit Japan's economy.

(Source: Reuters)