High-pressure winds on a delicate balance: 2026 Mid-Year Japan Economic Outlook

Research evidence excerpt

High-pressure winds on a delicate balance: 2026 Mid-Year Japan Economic Outlook

J P M O R G A N Japan Economic Research

01 July 2026

High-pressure winds on a delicate

balance

2026 Mid-Year Japan Economic Outlook

• Domestic demand likely to remain firm, with growth running above Economic and Policy Research

potential on the back of broader tailwinds from global AI investment and Ayako Fujita

fiscal measures cushioning the global oil shock (81-3) 6736-1172

• The government’s “high-pressure” policy tilt is becoming clearer, ayako.fujita@jpmorgan.com

including discussions of a comprehensive reset of the fiscal framework Benjamin Shatil

(81-3) 6736-1730

under “responsible and proactive fiscal policy” benjamin.shatil@jpmorgan.com

• Following the Middle East-driven oil price surge, the government Takuho Morimoto

expanded subsidies for fuel and household electricity prices, allocating a (81-3) 6736-6682

JPY3.1tn (0.5% of GDP) supplementary budget for energy subsidies in takuho.morimoto@jpmorgan.com

June JPMorgan Securities Japan Co., Ltd.

• Looking to FY27, a package combining a food consumption tax cut and a

large-scale off-budget growth investment plan is taking shape

• The key question is financing credibility, as plans that rely heavily on

upside tax-revenue surprises and future investment returns risk are

amplifying fiscal concerns

• The BoJ raised the policy rate to 1% in June and has signaled further

hikes, but the government remains averse to higher rates, keeping

markets focused on spillovers to JGBs and FX, including intervention risk

• While subsidies mechanically dampen headline inflation, underlying

inflation pressures are biased upward via wage gains and stronger cost

pass-through, shifting the debate from reaching 2% to the risk of

overshooting