As Jerome Powell warns stagflation is coming to the U.S., the Federal Reserve chair could do worse than eye what’s already afoot in Japan.

For all America’s moderating higher-price worries, Japanese consumer price index inflation is rising at a 3.6% year-on-year rate, nearly double the central bank’s 2% target. And Japan’s gross domestic product shrank 0.7% in the first quarter.

Worse, Japan’s January-March contraction predated many of Trump’s most draconian tariffs. So, expect Asia’s second-biggest economy to slide deeper into the red in the current April-June quarter.

Now for the really bad news: it’s not clear what Tokyo can do about it.

The Bank of Japan, after all, is in the midst of a two-year effort to normalize the monetary policy environment. That means getting interest rates as far away from zero — around which they’ve been since 1999 — as possible. In January, Governor Kazuo Ueda’s team got them as high as 0.5%, a 17-year high.

The betting is on when another tightening move is possible. In July? In 2026? Markets aren’t really talking about the BOJ beating a retreat back to zero. That’s what happened in 2008, the last time the BOJ tried to exit its deflation-era policy framework.

Loosening fiscal policy could be even more precarious, given recent events in the bond market. On May 20, the Ministry of Finance received the least demand for 20-year bonds since 2012. By some measures, it was the sloppiest government debt auction since 1987.

The immediate problem is Donald Trump. The chaos the president’s tariff onslaught caused in the U.S. Treasury market quickly spread to Japan, boosting yields. Amidst the turmoil, the “bond vigilantes” homed in on the developed nations with the worst debt loads. Japan has the biggest of all, with a debt-to-GDP ratio of 260%.

If Japanese Prime Minister Shigeru Ishiba tried to sneak one more stimulus package past the bond market, it might not go well. Suddenly, analysts at Moody’s Investors Service, fresh off downgrading Washington, might turn their attention Tokyo’s way.

A national election is also bearing down on Ishiba, set for July 22. With his approval ratings in the low 30s, headlines about global tremors and stagflation at home are a rough playing field for Ishiba and his Liberal Democratic Party.

Ishiba is also trying to hold off an increasingly desperate-for-trade-deal White House. Since the globe rolled its eyes at Trump’s “deal” with the U.K., with which the U.S. has a surplus, he’s anxious to show his “art of the deal” still works. Trump has viewed Japan as easy prey.

Yet Ishiba’s party did a bilateral trade Kabuki with Trump 1.0 only six years ago. The LDP’s hope is to slow-walk negotiations with Trump 2.0 so that Tokyo gets off with even fewer concessions this time around.

The plan could work. But then, Trump hasn’t gotten the trade-war impulse out of his system yet. Not when his White House is resorting to “aggressively” revoking Chinese student visas. Not when China isn’t stepping forward with proposed concessions.

On Wednesday, the U.S. Court of International Trade ruled that Trump doesn’t have the authority to slap tariffs on economies everywhere. Trump is already appealing. And his administration has hinted myriad times it might not heed certain court orders.

Also this week, a reporter asked Trump for a comment about Wall Street’s “TACO trade,” based on the idea that Trump always chickens out. Put it all together, and what’s to keep Trump from pivoting to even bigger tariffs? The courts, maybe, but who knows?

That would be dreadful news for Japan. Though most of Trump’s ire and tariffs are aimed at China, Japan is sustaining even bigger blows. As Japan's gross domestic product contracted in the first quarter, China grew a heady 5.4%.

Ishiba has called Trump’s tariffs a “national crisis,” and it’s hard to disagree. Aside from undermining China’s ability to buy Japanese goods, there’s still the risk that Trump will go ahead with a 24% “reciprocal” tax on Japan Inc. Already, though, Trump’s tariffs on steel and aluminum and 25% auto tax are a disaster for Japan.

Nissan Motor, remember, just announced it’s doubling its layoffs to 20,000 jobs. Toyota and Honda are also caught in the tariff crossfire.

For 20 years now, Tokyo has looked after its corporate giants with a weak yen. An undervalued exchange rate pumped up corporate profits and enabled CEOs to avoid massive job cuts. This dynamic is now in trouble as the BOJ tightens and Trump’s policies push the dollar lower.

What’s Tokyo to do? Any move to weaken the dollar might enrage Trump World, earning Japan bigger tariffs. Fiscal pump priming to juice growth might provoke the bond vigilantes. That’s just as true for Ueda’s BOJ as Powell’s Fed. Suffice it to say, 2025 can’t end fast enough for Tokyo.