BOJ May Raise 2027 Inflation Forecast as October Rate Hold Seen Likely

Key Facts

The Bank of Japan may slightly raise its core inflation forecast for fiscal 2027, Reuters reported, citing sources, while it is likely to leave interest rates unchanged at its October meeting. The sources attributed the possible revision to renewed increases in crude oil prices feeding through to prices. The forecast covers the consumer price index excluding fresh food and the fiscal period the bank uses in its projections. The sources said the likelihood of a hold depended on the yen avoiding a renewed decline that would raise import costs and inflation. The potential forecast revision comes after a rate increase in September, as policymakers assess the economic impact of previous tightening.

The BOJ's median forecast published in July put inflation excluding fresh food at 2.4% in fiscal 2027. In the same projections, the bank forecast real gross domestic product growth of 0.8% for that fiscal year. For fiscal 2026, the median inflation forecast on the same measure was 2.5%, according to the Outlook for Economic Activity and Prices report. The report put median real GDP growth for that year at 0.6%. The July projections thus pointed to slightly slower inflation and faster growth in the following fiscal year, before the renewed rise in oil prices cited by Reuters' sources.

Price risks also encompass developments in global technology demand that Reuters covered in an earlier report in July. That report said strong demand for artificial intelligence was driving up prices for semiconductor chips and electronic equipment, with the effects potentially feeding through to consumer goods later. By contrast, the agency reported separately that the Tankan survey showed stable corporate inflation expectations, with no acceleration requiring an immediate monetary policy response. Reuters said many at the bank preferred to wait in October to gather more data. They want to assess how rate increases implemented so far are affecting economic and financial conditions.

The BOJ's official September statement set the overnight interest rate target at around 1.25%, after the policy adjustment was approved by a vote of 7 to 2. That followed an increase to 1% in June, part of the tightening cycle preceding September's decision. Reuters said the successive increases had led markets to expect rate hikes at a pace of roughly once a quarter. The bank affirmed in its forward guidance that it would continue raising interest rates in response to developments in economic activity, prices and financial conditions. That guidance combines continued tightening with future moves tied to an assessment of those developments, without setting a fixed date for the next increase.

The Summary of Opinions from the September meeting included the view that "underlying consumer price inflation has broadly reached 2%." The same summary included a view that inflation was not accelerating at a pace that warranted haste, saying there was "no need to take hasty action." At a news conference in Bangkok, BOJ Governor Ueda said underlying inflation had moved close to the bank's target. He added, according to Reuters, "We cannot tolerate a further acceleration in inflation." In the foreign exchange market, the BOJ's bulletin quoted the dollar at 158.16–18 yen as of 17:00 Japan time on 19 October 2026, before the report was published.

The upcoming release sequence begins with national consumer price data for September, scheduled for publication on 23 October Japan time, according to the Statistics Bureau's calendar. The BOJ then holds its monetary policy meeting on 29 and 30 October. The meeting's final day coincides with the release of preliminary October inflation figures for the Tokyo area, according to the official release calendar. The bank will publish the Summary of Opinions from its October meeting on 10 November, followed by the meeting minutes on 23 December. Reuters' sources say another rate increase remains possible as early as December, when the bank holds its next meeting on 17 and 18 of the month.