BOJ Outlook Report (October 2026): inflation above 2%, upside price risks greaterHow the Bank of Japan sees the economy and prices ahead (October 2026)
On October 30, 2026, the Bank of Japan published the Bank's View in its Outlook for Economic Activity and Prices (October 2026), decided at the Monetary Policy Meeting held on October 29 and 30. In fiscal 2026 higher energy and raw material prices weigh on the economy, but growing global AI-related demand, government measures and accommodative financial conditions provide support, so growth is expected to slow yet remain moderate. Year-on-year CPI (all items less fresh food) is projected to rise clearly above 2% and then narrow toward about 2%.
Key points
- In fiscal 2026, higher energy and raw material prices stemming from the Middle East situation weigh on the economy through worsening terms of trade, but growing AI-related demand, government measures (including energy burden relief) and accommodative financial conditions provide support, so growth slows yet stays moderate. From fiscal 2027 growth is projected to rise gradually
- Year-on-year CPI (all items less fresh food) is pushed up by higher oil prices, higher semiconductor prices and the past depreciation of the yen while wage increases continue to be passed on to selling prices. It is projected to rise clearly above 2%, then to narrow toward about 2% in the latter half of the projection period. It is currently around 2%
- Compared with the previous projections in July, growth is broadly unchanged. CPI (all items less fresh food) for fiscal 2027 is somewhat higher owing to the rise in oil prices since the summer. CPI (all items less fresh food and energy) is broadly unchanged
- Risks to the economy are broadly balanced, while upside risks to consumer prices are greater. The report lists the Middle East situation, developments in AI-related demand and exchange rate movements as risk factors
- A footnote states that the temporary cut in the consumption tax rate on food and drink, now under deliberation in the Diet, is not incorporated in these projections. On the premise of the tax reform outline approved by the Cabinet in September, a mechanical calculation assuming the change applies to all covered items would lower year-on-year CPI (all items less fresh food) for fiscal 2027 by about 1.3 percentage points, and CPI (all items less fresh food and energy) by about 1.4 percentage points
What to do in practice
- Factor into pricing, wage and funding plans the fact that the Bank sees upside risks to prices as greater
- The temporary cut in the consumption tax rate on food and drink is not incorporated in the projections. If your business handles covered items, follow the deliberations in the Diet separately
- Check the gap between your own purchasing assumptions and the report's assumption that Dubai crude starts at about 105 dollars a barrel and falls to about 70 dollars toward the end of the projection period
Every three months the Bank of Japan publishes an Outlook Report on how it sees the economy and prices ahead. In the October 2026 report, higher oil and raw material prices are a heavy load, but the worldwide demand for machines and parts used for AI and other factors provide support, so Japan's economy is expected to keep growing slowly. Prices are expected to rise clearly above the 2% the Bank is aiming for, and then to come back to around 2%.
- Fiscal 2026Higher oil and raw material prices are a burden, but AI-related demand and other factors support the economy, so growth slows yet continues
- From fiscal 2027The bad effects of the price rises fade, more earnings flow into wages and spending, and growth picks up little by little
- Latter half of the projection periodPrice increases ease toward about 2%
- Things to watchThe Middle East situation, developments in AI-related demand, and exchange rate movements
Points
- Higher oil and raw material prices are a burden, but AI-related demand and other factors support the economy
- Price increases are expected to grow to clearly above 2%
- The report says the worry that prices rise more than expected is the bigger one
What the words mean
- Outlook Report
- the report the Bank of Japan publishes every three months on how it sees the economy and prices ahead
- upside risk
- the worry that something turns out higher than expected (for prices, that they rise too much)
先行きのわが国経済を展望すると、2026年度については、中東情勢の影響を受けた春先以降のエネルギー・原材料価格の上昇が下押し要因となるものの、グローバルなＡＩ関連需要の増加に加え、政府による各種施策や緩和的な金融環境等が経済を下支えすると考えられるため、わが国経済は、伸び率を縮小しつつも、緩やかな成長を続けるとみられる。
前回の見通しと比べると、成長率は概ね不変である。消費者物価（除く生鮮食品）の前年比は、夏場以降の原油価格上昇の影響等から2027年度が幾分上振れている。
リスクバランスをみると、経済の見通しについては、概ねバランスしている。消費者物価の見通しについては、上振れリスクの方が大きい。
- Bank of Japan: Bank of Japan, Outlook for Economic Activity and Prices (October 2026), the Bank's View
- Bank of Japan: Bank of Japan, list of Outlook for Economic Activity and Prices reports
Economic news presents published statistics and outlooks. It is not investment solicitation or trading advice. Figures are as of publication and may be revised.
This article summarizes and explains materials published by government agencies and is not advice on any individual case. Rules can change, so for actual procedures and decisions always check the latest original materials and consult professionals such as tax accountants or labor and social security attorneys. English, Simplified Chinese and Traditional Chinese versions are translations prepared from the Japanese articles for convenience. If anything differs, the Japanese text and the original source take precedence.