TOKYO (Reuters) -Japanese stocks sank on Friday to their lowest levels since last August, and were set for 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.

As of 0420 GMT, the Nikkei index was down 3.6% at 33,474.56, and on course for a weekly decline of nearly 10%, if losses hold.

The broader Topix fell 4.6% to 2,448.94, poised for a weekly drop of 11%. Both indexes were set for their steepest weekly losses since March 2020.

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.

Japanese bank shares recently gained popularity among investors betting on rising BOJ interest 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, one of Japan's biggest banking groups, fell 11.6% and were set for their biggest one-day drop since August 5.

"Banks in Japan are caught in the crossfire of waning rate-hike expectations coinciding with the market coming to terms with increased chances of a global recession," said Jon Withaar, who manages an Asia special situations hedge fund at Pictet Asset Management.

BOJ Governor Kazuo Ueda said that the central bank will 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 percentage losses in years. S&P 500 companies lost a combined $2.4 trillion in stock market value. [.N]

Takamasa Ikeda, 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.