The Bank of Japan on May 1 downgraded its expected growth for the coming year to 0.5% from the 1.1 percent the central bank had forecast in January, reports the New York Times. The governor of the Bank of Japan, Kazuo Ueda, cited the imposition of an “unprecedented level” of tariffs by the U.S, saying these trade barriers threaten both economic growth overseas and corporate profits in Japan.

The Bank of Japan’s outlook was released alongside an announcement that Japan’s central bank would keep interest rates unchanged at 0.5%, in an attempt to steady the economy.

The news comes days after the International Monetary Fund lowered its 2025 outlook for all Group of 7 nations, including Germany and Japan, the world’s third- and fourth-largest economies, due largely to U.S. tariffs.

In Japan, President Donald Trump’s new taxes on imports — including a 25% tariff on imported cars — are already weighing heavily on the economy. The country is also bracing for potentially higher across-the-board levies of 24%, which the prime minister has said would cause a national crisis if they were not negotiated lower.

Even though Japan has shifted much of its manufacturing base overseas, it still exports a substantial number of products, including cars, to the U.S. Items produced by Japanese companies outside Japan and then shipped to the United States also face the threat of higher tariffs.