Factors like accommodative financial conditions are, however, expected to provide support, the central bank noted in its October 2025 Outlook for Economic Activity and Prices.
Thereafter, Japan’s economic growth rate is likely to rise, with overseas economies returning to a moderate growth path, it said.
Japan’s FY26 economic growth is likely to be modest as trade and other policies in each jurisdiction lead to a slowdown in overseas economies and to a decline in domestic corporate profits, the Bank of Japan has said.
Factors like accommodative financial conditions are expected to provide support, it noted.
Risks to economic activity are skewed to the downside.
Risks to prices are generally balanced.
The year-on-year (YoY) rate of increase in the consumer price index (CPI, all items less fresh food) is likely to decelerate to a level below 2 per cent in the first half of fiscal 2025-26. Meanwhile, underlying CPI inflation is likely to be sluggish, mainly affected by the growth pace of the economy.
Thereafter, as it is projected that a sense of labour shortage will grow as the economic growth rate rises and that medium- to long-term inflation expectations will rise, it is expected that underlying CPI inflation and the rate of increase in the CPI (all items less fresh food) will increase gradually and, in the second half of FY26, be at a level that is generally consistent with the price stability target.
Risks to the outlook include high uncertainty on how overseas economic activity and prices will react to trade and other policies in each jurisdiction.
It is, therefore, necessary to pay due attention to the impact of these developments on financial and foreign exchange markets and on Japan’s economic activity and prices, the central bank cautioned.
Risks to economic activity are skewed to the downside for FY26. Risks to prices are generally balanced, it added.
Fibre2Fashion News Desk (DS)