The Bank of Japan (BOJ) raised its fiscal 2027 inflation forecast and said price risks are tilted upward, while its baseline still sees underlying inflation near the 2% target.
The BOJ’s median forecast for year-over-year consumer price inflation excluding fresh food is 2.5% in fiscal 2026, 2.6% in fiscal 2027 and 2.0% in fiscal 2028. The 2027 projection is 0.2 percentage point higher than in July; the 2026 and 2028 forecasts are unchanged. The bank’s July 2026 outlook projected 2.4% inflation for fiscal 2027.
The BOJ expects that inflation rate to rise clearly above 2% in the first half of its projection period, citing higher crude oil and semiconductor prices and yen depreciation. It sees the rate easing toward about 2% in the second half as the effects of high crude oil prices fade.
For CPI excluding both fresh food and energy, the BOJ projects increases of 2.4% in fiscal 2026, 2.7% in fiscal 2027 and 2.3% in fiscal 2028. Those forecasts are 0.1 percentage point lower, 0.1 point higher and 0.1 point higher, respectively, than in July.
The BOJ pointed to persistent labor shortages and continued moderate wage and price increases as signs of underlying inflation. It estimates medium- to long-term inflation expectations at around 2%, while warning that expectations could rise and push underlying inflation above target as more firms increase wages and prices.
The bank forecasts real gross domestic product growth of 0.7% in fiscal 2026, 0.7% in fiscal 2027 and 0.8% in fiscal 2028. The 2026 estimate is 0.1 percentage point higher than in July; the 2027 figure is 0.1 point lower, while the 2028 forecast is unchanged. The BOJ sees activity risks as roughly even and expects moderate, slower growth in fiscal 2026. Higher energy and raw-material costs weigh on that outlook, while AI-related demand, wage increases and government measures provide support.
From fiscal 2027, the BOJ projects a modest improvement in growth as energy and raw-material headwinds ease and the income-spending cycle gains momentum. Its forecasts do not include the effects of a proposed consumption tax reduction on food and beverages.
