Bank of Japan may lift 2027 inflation forecast while holding rates in October
Four people familiar with the central bank’s thinking told Reuters that renewed oil pressure could prompt a small forecast revision, while a rate increase may wait.
The Bank of Japan may slightly raise its inflation forecast for fiscal 2027 while holding interest rates steady at its October 29–30 policy meeting in Tokyo, Reuters reported on October 20, citing four people familiar with the central bank’s thinking. A renewed rise in oil prices is adding to price pressure, but the sources said it does not yet warrant another rate increase immediately after September’s move.
The forecast change would appear in the bank’s October outlook, scheduled for October 30. Reuters’ sources expect the revision to be minor: they saw little sign that the energy shock is becoming embedded in a cycle of sharp wage and price increases. The bank has not released the new forecast or made its October rate decision.
Why the Bank of Japan may hold rates
A renewed fall in the yen could change the rate calculation by raising import costs and broader inflation, the sources told Reuters. Otherwise, they expect the bank to keep rates steady this month while emphasizing inflation risks in its quarterly outlook. One source said consumer price growth could remain elevated longer than expected without a large change in underlying inflation; another said there was little reason to rush a further increase.
The bank raised its key rate to 1.25% in September, its highest level in 31 years. Governor Kazuo Ueda has warned that underlying inflation could exceed the bank’s 2% target amid pressure from the Middle East conflict, a weak yen and strong demand related to artificial intelligence. The October outlook could leave room for another increase as soon as December, the sources said.
The forecasts behind the decision
In July, the bank projected core consumer inflation of 2.5% for the fiscal year ending March 2027, easing to 2.4% in the following year. The sources said the latest oil increase could prompt a slight upward adjustment to that second forecast. They expect growth projections to remain roughly 0.6% for fiscal 2026 and 0.8% for fiscal 2027, with exports of artificial intelligence related goods offsetting weak consumption.
The bank’s October 1 Tankan survey found corporate inflation expectations remained elevated but had not accelerated from three months earlier, Reuters reported. Its sources said recent data did not point to inflation risks rising enough to require increases at consecutive monthly meetings. The official schedule sets the next policy meeting for October 29–30 and the outlook’s release for October 30.
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Sources and context
- Bank of Japan may raise inflation forecast, stand pat on rates, sources sayChannel NewsAsia (Reuters)
- Monetary Policy MeetingsBank of Japan
AI-assisted article checked against the listed sources. NewsJaws did not conduct interviews or attend the reported events.