BoJ raises its fiscal 2027 inflation forecast to 2.6% and sees upside risks

Serguey Asael Shinder31 October 2026, 10:432 min read

The Bank of Japan's quarterly Outlook Report, decided at the policy meeting of 29 and 30 October, raises the board's inflation forecast for next fiscal year and changes the language about where inflation stands. The median forecast for consumer prices excluding fresh food is now 2.5% for fiscal 2026, unchanged, 2.6% for fiscal 2027, up from 2.4% in July, and 2.0% for fiscal 2028. Excluding fresh food and energy, the medians are 2.4%, 2.7% and 2.3%.

Growth forecasts barely move: real GDP is seen rising 0.7% in fiscal 2026, up from 0.6%, 0.7% in fiscal 2027, down from 0.8%, and 0.8% in fiscal 2028. The board attributes the higher inflation path mainly to crude oil, which has risen since the summer because of the situation in the Middle East, together with the pass-through of wage increases, higher semiconductor prices driven by AI demand and the yen's past depreciation. Futures markets, the report notes, imply Dubai crude falling from about $105 a barrel to about $70 by the end of the projection period.

The central statement is that underlying CPI inflation is "at a level that is generally consistent with the price stability target of 2 percent" and expected to stay there. Risks to growth are described as balanced, but risks to prices are skewed to the upside: with firms increasingly willing to raise wages and prices, the board sees a risk that medium- to long-term inflation expectations rise and underlying inflation overshoots the target.

The forecasts exclude a proposed temporary cut in the consumption tax on food and beverages now before the Diet. If applied as outlined, the Bank estimates it would lower fiscal 2027 core CPI inflation by about 1.3 percentage points.

What it means

Declaring underlying inflation at target and flagging upside risk is the language a central bank uses before it raises rates. The Bank held its policy rate at 1.25% this week, and the report gives it the justification for another move. The consumption tax cut complicates the picture: it would pull measured inflation down sharply in fiscal 2027 without changing the underlying trend the board says it is watching.