Bank of Japan Holds Rate as Inflation Outlook Climbs on Crude Costs

The Bank of Japan (BOJ) kept monetary policy unchanged on Tuesday (April 28), even as it lifted its inflation outlook for fiscal 2026 because of higher crude oil prices linked to tensions in the Middle East.

At the end of its two-day meeting, the BOJ’s Policy Board voted six to three to continue guiding the unsecured overnight call rate, Japan’s benchmark short-term interest rate, to around 0.75 per cent.

The rate had been raised from around 0.5 per cent under a decision made in December last year.

The three dissenting Policy Board members called for the policy rate to be increased to around 1.0 per cent.

In its latest quarterly Outlook for Economic Activity and Prices report, adopted at the meeting, the BOJ projected Japan’s core consumer price index would rise 2.8 per cent in fiscal 2026, which began this month.

That was up from the 1.9 per cent forecast in the previous report issued in January.

The central bank also raised its forecast for core CPI growth, which excludes often volatile fresh food prices, to 2.3 per cent for fiscal 2027 from 2.0 per cent.

Its newly released projection for fiscal 2028 put core CPI growth at 2.0 per cent.

The BOJ lowered its real gross domestic product growth forecast for fiscal 2026 to 0.5 per cent from 1.0 per cent.

It also cut the fiscal 2027 GDP growth outlook to 0.7 per cent from 0.8 per cent, while estimating growth for fiscal 2028 at 0.8 per cent.

“Japan's economic growth is likely to decelerate in fiscal 2026, since the rise in crude oil prices reflecting the impact of the situation in the Middle East is expected to push down corporate profits and households' real income,” the BOJ said.

The central bank added, “Japan's economic growth rate is likely to rise moderately from fiscal 2027 onward, since it is projected that the adverse effects of high crude oil prices will wane and that a virtuous cycle from income to spending will gradually intensify.”

[Copyright The Jiji Press, Ltd.]