Bank of Japan may lift 2026 growth forecast while staying alert to inflation

The Bank of Japan is weighing a modest upgrade to its fiscal‑2026 economic growth outlook, moving it above the 0.5% expansion projected in April, as strong demand for artificial‑intelligence‑related products and lower oil prices ease some price pressures. At the same time, the central bank is likely to trim its core‑inflation projection for the current fiscal year, which had been set at a 2.8% rise, but it will keep its focus on the risk of an inflation overshoot.

The BOJ plans to leave the short‑term policy rate at 1% when it meets at the end of July and has signalled that further rate hikes remain possible, though it will not give a clear timetable. Wholesale inflation surged 7.1% in June as firms passed on higher raw‑material costs, while core consumer inflation stayed below the 2% target for a fourth month. The bank said firms are likely to raise food and daily‑necessities prices from the summer onward, which could pull consumer prices higher later in the year.