BOJ may raise growth forecast, keep vigilance on inflation risk

Key facts

• The Bank of Japan may revise its economic growth forecast for fiscal 2026 upward.
• The BOJ is expected to maintain vigilance on inflation risks, particularly from a weak yen and rising costs.
• The central bank may trim its core inflation forecast for the current fiscal year due to falling oil prices.
• The BOJ is anticipated to keep its short-term policy rate at 1% at its upcoming July meeting.
• Japan's government will affirm the Bank of Japan's independence in its economic blueprint to signal no intervention in monetary policy.

The Bank of Japan may revise its economic growth forecast for fiscal 2026 upward, while maintaining its focus on inflation risks stemming from a weak yen and strong AI demand, according to sources familiar with the BOJ's thinking. The central bank is also expected to trim its core inflation forecast for the current fiscal year due to falling oil prices, a consequence of a preliminary U.S.-Iran peace deal. However, this downgrade is unlikely to alter the BOJ's focus on persistent price pressures from the weak yen, wage gains, and the energy shock from the Middle East war. The BOJ is expected to keep its short-term policy rate at 1% at its upcoming July policy meeting. Meanwhile, the Japanese government will affirm the Bank of Japan's independence in its economic blueprint, signaling no intention to intervene in monetary policy, following market concerns over previous draft language that suggested potential government influence on interest rates. Economy Minister Minoru Kiuchi stated the government will not pre-emptively convey preferences on BOJ monetary policy.