(Updates at Japan close)

By Junko Fujita and Ankur Banerjee

TOKYO, April 4 (Reuters) - Japanese stocks sank on

Friday to their lowest since last August, marking their sharpest

weekly drop in five years, as fears of a global recession in the

wake of U.S. President Donald Trump's sweeping tariffs gripped

markets.

The Nikkei average closed down 2.75%, registering a

9% drop for the week, its steepest weekly decline since March

2020. The index also hit its lowest since early August during

the session.

The index is down 20% from its peak in July, meaning it is

in bear market territory per some market definitions.

The brutal selloff came after Trump announced on Wednesday

Washington's steepest trade barriers in more than 100 years,

sending investors scrambling for safe-haven assets, including

the yen, which added further pressure on Japanese

stocks.

The rout was led by banking stocks as the spectre of tariffs

and their potential impact on economic growth stoked speculation

that the Bank of Japan may need to delay rising interest rates.

The banking index fell over 8% on Friday,

recording a 20% decline for the week, its worst weekly

performance on record, according to LSEG data.

The broader Topix closed down 3.3% and clocked a 10%

drop for the week, its biggest weekly decline since March 2020.

Japanese bank shares recently gained popularity among

investors betting on rising BOJ rates.

All but three of the Tokyo Stock Exchange's 33 industry

sub-indexes dropped on Friday, with the banking index

down 11%, making it the worst performer and triggering a circuit

breaker.

The banking index was on track for a decline of more than

20% this week, its worst weekly performance on record. Shares of

Mitsubishi UFJ Financial Group ( MUFG ), one of Japan's biggest

banking groups, fell 11.6%, their sharpest one-day drop since

August 5.

"There was quite a bit of froth in this market going into

this Trump tariff announcement," said Kei Okamura, a portfolio

manager at Neuberger Berman in Tokyo.

Banks had been doing well, and it appeared hedge funds had

big exposure to the sector, hence the volatility, he said.

"The Trump tariff announcement is obviously creating

uncertainties about the outlook for the currency because of

what's happening in terms of the discussions within the BOJ."

"With that uncertainty about the potential for how many more

rate hikes we can see this year, that's why we're seeing this

reversal not just for JGB yields, but also in terms of the

(banking) sector," Okamura said.

BOJ Governor Kazuo Ueda said the central bank would

scrutinise the impact of U.S. tariffs on the country's economy

when setting monetary policy, warning the higher levies will

likely weigh on global and domestic economic growth.

Wall Street benchmarks slumped on Thursday, ending with the

largest single-day losses in years. S&P 500 companies lost a

combined $2.4 trillion in stock market value.

Takamasa Ikeda, a senior portfolio manager at GCI Asset

Management, said the Nikkei has "double headwind - the tariff

and the stronger yen" and could fall to as low as 32,000 this

month.