Trade Tensions Rattle Japanese Banking Stocks Amid Economic Reflation Worries

Japanese banks faced their steepest weekly decline in four decades due to U.S. tariffs, sparking concerns over global growth and Japan's economic recovery. The drop highlights the impact of protectionist policies and the fragility of Japan's exit from deflation. Analysts debate the future trajectory amid global recession fears.

Japanese banks witnessed their most significant weekly decline in over four decades, with shares tumbling amid fears of a slowdown in global growth triggered by U.S. tariffs. This decline threatens Japan's fragile economic recovery and the country's longstanding efforts to normalize interest rates.

Major players like Mitsubishi UFJ Financial Group saw an 8.5% drop, marking a grim reminder of the repercussions of protectionist policies under the Trump administration. The downturn disrupts Japan's slow venture into economic reflation, spurred in part by a strong dollar and increased corporate activity.

Despite some analysts suggesting potential tariff negotiations, investors brace for a worst-case scenario. Concerns over a global recession could prompt Japan's central bank to revise growth forecasts and delay rate hikes, as mounting inflationary pressures put additional strain on the economy.

(With inputs from agencies.)