Unable to complete journal paper by deadline, is this a problem?
I will focus on the journal, as your plans and relationship with your advisor really need to be worked out between you and them, and follow much the same lines.

Withdrawing from submitting an anticipated journal paper is not the end of the world.  Yes, people will think less of you than if you submitted it, but it is better than either writing a bad paper or dragging the process out indefinitely.  Sometimes bad stuff happens, sometimes plans change, and journal editors will not be shocked or startled.  Moreover, they will likely be happier to have a clear "no" than an open unresolved question.

To handle this as best you can, you just need to make sure that you communicate your change of plans clearly, e.g., emailing something along the lines of:


  Due to a chance in circumstances, I will be unable to submit this paper in a timely fashion.  My apologies and thank you for your patience.


No further explanations or excuses are needed, just a clear statement that you aren't going to write the paper after all.