The Bank of Japan is expected to lower its economic growth forecast in July, and also expects inflation to stabilize at around 2% in the next few years. This forecast makes a rate hike more likely this month, and it plans to weigh whether to raise rates from their current low level at its policy meeting at the end of July.
Japan’s GDP is expected to decline slightly, prompting the Bank of Japan to fine-tune its growth forecast for the current fiscal year. However, the GDP forecasts for fiscal years 2025 and 2026 may remain unchanged based on the view that the economy is recovering moderately. The central bank’s April forecast shows growth of 0.8% in the current fiscal year ending March 2025 and 1.0% in each of the following two years. Inflation forecast (excluding fresh food and energy) is 1.9% in 2024-2025, rising to 2.1% in 2026.
The GDP downgrade had little impact on the central bank’s economic assessment due to a positive view that progress is on track. The central bank may maintain its stance and expects inflation to be close to its 2% target in early 2027, indicating favorable price dynamics.
The Bank of Japan’s series of forecasts and plans reflect its cautious assessment of current economic conditions and optimistic expectations for the future. The government and the central bank should continue to pay close attention to changes in economic indicators and flexibly adjust policies to meet challenges and seize opportunities, as well as weigh various factors, including the pace of economic growth, the state of the job market, and the global economic environment, in deciding to raise interest rates. On the other hand, central banks should continue to closely monitor inflation trends to ensure that they fluctuate within a manageable range.
