The Bank of Japan raised its fiscal 2027 inflation projection to 2.6%, pointing to oil costs, AI demand and yen weakness, a shift that leaves prices above its 2% goal.
The forecast is for the consumer price index excluding fresh food. The BOJ’s median projections for that measure are 2.5% in fiscal 2026 and 2.0% in fiscal 2028. It assessed underlying inflation as consistent with its 2% objective, while judging that price risks lean higher. Its scenario assumes Dubai crude falls from roughly $105 per barrel to about $70 near the end of the projection period.
The bank cited oil prices, demand for AI-related goods and yen depreciation as factors that could push prices up. It also pointed to labor shortages and companies passing higher wages on through selling prices as influences on price trends.
The BOJ’s median real GDP growth projection is 0.7% for fiscal 2027, down from 0.8% in July. It raised its fiscal 2026 estimate to 0.7% from 0.6% and left its fiscal 2028 projection at 0.8%. The bank described its overall growth outlook as broadly stable.
Middle East-related energy and raw-material costs could squeeze corporate profits and household real incomes, the BOJ said. It expects government measures to ease household energy costs and accommodative financial conditions to support activity, alongside global demand for AI-related goods.
The forecasts do not account for a proposed temporary consumption-tax cut on food and beverages, which remains under Diet deliberation. Under the BOJ’s assumed scenario, the measure would lower the fiscal 2027 inflation rate by about 1.3 percentage points for the index excluding fresh food and 1.4 points for the index excluding fresh food and energy.
In a separate decision Friday, Oct. 30, the BOJ kept its overnight call-rate guideline around 1.25% in an 8-1 vote. Policy Board member TAKATA Hajime dissented, proposing a guideline around 1.5%. The bank said future rate increases would depend on its outlook and risks. The decision was also covered in EconoTimes’ report on the BOJ rate hold.
The BOJ calendar schedules the complete Outlook Report for Nov. 2 and the meeting’s Summary of Opinions for Nov. 10.
