Japan

Research evidence excerpt

Japan

lecting insufficient discussion of

surefunding sources and concerns about having to raise the rate

again in the future—and the National Council to which the There was one dissenting vote, with Takata calling for a rate

PM delegated deliberations had been unable to reach a con- hike. The Outlook Report revisions to the economic and infla-

clusion. However, with cabinet approval ratings on a declin- tion forecasts were mechanical in nature: the near-term

ing trend, albeit still at relatively high levels, the PM has now growth forecast was nudged slightly higher, while the FY26

effectively made a final decision. If implemented, a mechani- inflation forecast was lowered to reflect the reintroduction of

cal calculation suggests that the measure would likely lower electricity and gas subsidies. By contrast, the monetary policy

headline inflation by around 1.5%-pt for a year from next guidance was adjusted in a more hawkish direction. Until

spring onward, while also leading to an annual loss of tax rev- June, the only factor explicitly cited as something to watch in

enue of ¥5 trillion (0.7% of GDP) when related policies are judging the timing and pace of adjustments to the degree of

included. As work on next fiscal year’s budget accelerates, monetary accommodation was developments in the Middle

the risk is rising that the direction of fiscal expansion will East—an item that was more likely to argue for delaying

become clearer, alongside a strategic investment budget esti- hikes. This time, however, the BoJ added the expansion of

mated to exceed ¥10 trillion (1.4% of GDP). AI-related demand and the impact of exchange-rate fluctua-

tions, both of which could bring forward rate hikes. In addi-

The BoJ held rates as expected, with one dissent.