Tamura: Japan's 2% inflation target achieved, risks skewed up
Bank of Japan Policy Board Member Naoki Tamura stated his view that Japan's 2 percent price stability target has already been achieved, with risks to prices skewed to the upside. He presented this assessment at a meeting with local leaders in Hyogo on June 25, 2026.
Global headwinds shape Japan's outlook
Japan's economy has recovered moderately, despite some weakness from the Middle East situation.
Following a new U.S. tariff policy in April 2025, real GDP growth forecasts were revised, but trade agreements reduced uncertainty.
Business sentiment, as seen in the Tankan DI, remained favorable, boosted by global AI-related demand.
However, increased tension in the Middle East in February 2026 led to another downward revision for fiscal 2026 GDP growth, mainly due to rising crude oil prices impacting corporate profits and household income.
The Bank of Japan projects a moderate rise from fiscal 2027 as adverse effects wane, assuming an easing of Middle East tensions and declining crude oil prices from around 105 to 70-80 U.S. dollars per barrel by fiscal 2028.
Elevated crude oil prices pose a risk of further economic slowdown.
Inflation's path: Wages and energy
Japan's CPI (excluding fresh food) recently stood at 1.5 percent, influenced by government energy measures.
While the January 2026 Outlook Report initially projected fiscal 2026 CPI to align with earlier forecasts due to wage increases, the Middle East situation forced further revisions.
The new baseline expects CPI to accelerate clearly above 2 percent, driven by crude oil prices and wage pass-through.
It is then projected to decline towards 2 percent as crude oil effects diminish, with underlying CPI consistent with the 2 percent target from late fiscal 2026 to fiscal 2027.
2 percent target met, risks lean up
Policy Board Member Tamura believes Japan's underlying CPI inflation has already reached the 2 percent price stability target, with risks skewed to the upside.
This assessment is based on solid wage increases, CPI above 2 percent excluding institutional factors, and firms' and households' inflation expectations around 2 percent.
The target is met, in his view, requiring vigilance against upward price deviations.