Inflation forecast reaches 2.6 percent in FY2027 with upside risks
Japan's inflation excluding fresh food is projected at 2.6 percent in FY2027 before easing to 2.0 percent in FY2028, the Bank of Japan (BoJ) says. Underlying inflation remains around target, but price risks are tilted upward.
Inflation peaks before easing
The BoJ projects real GDP growth of 0.7 percent in FY2026 and FY2027, then 0.8 percent in FY2028. Revisions from July 2026 are +0.1, -0.1 and zero percentage points, respectively.
Inflation excluding fresh food is forecast at 2.5, 2.6 and 2.0 percent across those years; only FY2027 changes, up 0.2 percentage points.
Excluding fresh food and energy, forecasts are 2.4, 2.7 and 2.3 percent, revised by -0.1, +0.1 and +0.1 percentage points.
The forecasts exclude the proposed consumption-tax reduction on food and beverages.
Crude oil, semiconductor prices and yen depreciation lift inflation early in the projection period; fading oil effects later bring it toward 2 percent.
Growth slows in FY2026 as energy and raw material costs weigh on activity.
Wages anchor the baseline
Underlying inflation is broadly consistent with the 2 percent target, supported by labor shortages and mutually reinforcing wage and price increases.
Medium- to long-term inflation expectations are around 2 percent.
The BoJ sees balanced activity risks but upside price risks if expectations rise further.
Middle East developments, AI demand and exchange rates are risk factors.
AI demand, wage gains and government measures support FY2026 activity; easing input-cost pressures and stronger income-to-spending dynamics support growth from FY2027.
Target proximity does not remove risk
The BoJ distinguishes underlying inflation near target from temporarily higher inflation driven by input costs.
Its upside risk centers on expectations and firms' wage and price setting.
The baseline still projects inflation excluding fresh food returning to 2.0 percent in FY2028.