The Bank of Japan (BoJ) anticipates an economic slowdown as the real impact of the U.S.-initiated trade war is absorbed. However, it projects that GDP will resume a moderate growth trajectory as the situation stabilizes.
The Japanese central bank also revised its forecast for price increases for the fiscal year 2025, which ends in March 2026, upward by five-tenths to 2.7%, reflecting recent months’ price hikes, particularly in food, with rice being a prime example.
The institution highlighted that it considered ongoing risks while revising the projections included in the quarterly economic forecast report, released at the end of the two-day monetary policy meeting.
“It remains very uncertain how trade and other policies will evolve in each jurisdiction and how economic activity and prices will react,” the BoJ mentioned, emphasizing the necessity to monitor these factors’ impact on financial and currency markets.
In this scenario, the central bank kept its GDP growth forecast unchanged for 2026 and 2027, at 0.7% and 1%, respectively, but revised its inflation estimate for those years upward by one-tenth to 1.8% and 2%.
The BoJ closely monitors price movements, which rose 3.7% in May, marking the seventh consecutive month above 3%. It views the widespread trend of companies increasing wages positively, though salaries have yet to match the pace of inflation.
However, the institution fears that these efforts could be undermined by tariff uncertainty and the possibility of the business sector opting to cut expenses, indirectly referring to protectionist policies like those adopted by the United States.
A press conference by BoJ Governor Kazuo Ueda is scheduled for the coming hours to detail the report and answer journalists’ questions.
