BOJ publishes full October 2026 Outlook Report: labour supply constraints add upward pressure on wages and pricesThe Bank of Japan's full report: when workers are scarce, pay and prices rise more easily
On November 2, 2026 at 2:00 p.m., the Bank of Japan published the full text, including background explanation, of the Outlook for Economic Activity and Prices (October 2026) decided at the Monetary Policy Meeting held on October 29 and 30. This article covers the sections on the factors that determine the underlying trend in prices and on risk factors. The macro output gap, which reflects the utilisation of labour and capital, has remained slightly positive and is projected to stay positive at around the current level. At the same time, partly because the pace of increase in labour participation by women and older people has slowed, labour market conditions are tighter than the output gap suggests, and with firms in labour-intensive industries increasingly facing labour supply constraints, upward pressure on wages and prices is more likely to emerge than the output gap would imply.
Key points
- The macro output gap, which reflects the utilisation of labour and capital, has remained slightly positive. Looking ahead, under the current economic projection, it is expected to remain positive at around the current level
- Partly because the pace of increase in labour participation by women and older people has slowed, labour market conditions are tighter than the macro output gap indicates. With firms, mainly in labour-intensive industries, increasingly facing labour supply constraints, the Bank sees upward pressure on wages and prices as more likely to emerge than the output gap suggests
- Medium- to long-term inflation expectations are at around 2 percent. They are expected to stay at broadly the current level as firms maintain their active stance on wage- and price-setting. The underlying rate of inflation is broadly consistent with the 2 percent price stability target, and the report notes that most related indicators are in the neighbourhood of 2 percent
- The potential growth rate, when estimated by a certain method, is calculated at around the middle to latter half of the 0 percent range. The report cautions that the estimate depends on the method used and on data accumulated in the future, and should therefore be regarded as having a considerable margin
- The projection assumes that Dubai crude oil, starting at around 105 dollars per barrel, will decline to around 70 dollars per barrel toward the end of the projection period. However, given higher transport and other costs from alternative procurement, the report states that procurement prices faced by Japanese firms will not fall as much as international market prices. Measures easing the energy cost burden, such as fuel oil subsidies, and the policy of making education free push down the year-on-year rate of change in consumer prices for fiscal 2026
What to do in practice
- Assume that tight labour market conditions continue, and plan hiring and the price revisions that fund pay rises as one package
- Treat separately the report's oil price assumption (from around 105 dollars per barrel falling to around 70 dollars toward the end of the projection period) and its point that procurement prices actually paid by firms will not fall as much as international market prices
- Check how your assumptions for selling prices and labour costs change while the energy burden relief and free education measures are pushing prices down, and after those effects fade
On November 2 the Bank of Japan published the full version, including the detailed explanation, of the October report on the outlook for the economy and prices. In it the Bank says that the output gap, a measure of how busy the country's factories and shops are, is only slightly positive. Even so, the shortage of workers is stronger than that level of busyness would suggest, and it is especially hard to find staff for jobs that need many hands. For that reason, the report says, pay and prices are more likely to rise.
- 1. Workers are scarceFewer people are newly joining the workforce, so companies find it harder to hire
- 2. Pay goes upTo attract staff, companies raise wages and hourly pay
- 3. Added to pricesThe higher labour cost is added to the price of goods and services
- 4. Prices riseShopping becomes more likely to cost more
Points
- The output gap, which shows how busy factories and shops are, is expected to stay slightly positive
- The shortage of workers is stronger than that busyness suggests, partly because fewer women and older people are newly joining the workforce than before
- Because of this, the report says pay and the prices of goods are more likely to rise
What the words mean
- Output gap
- A rough measure of how busy the country's factories, shops and workers are. A positive figure means busier than usual
- Supply constraint
- Not being able to make or sell what you want because workers or materials are short
物価の基調を規定する主たる要因について点検すると、労働や設備の稼働状況を表すマクロ的な需給ギャップは、小幅のプラスで推移している。先行きの需給ギャップは、上記の経済の見通しのもとで、現状程度のプラスが続くと予想される。この間、女性や高齢者による労働参加の増加ペースの鈍化もあって、労働需給はマクロ的な需給ギャップ以上に引き締まっている。こうしたもと、労働集約的な業種を中心に企業が労働の供給制約に直面しつつある状況を踏まえると、マクロ的な需給ギャップが示唆する以上に、賃金や物価には上昇圧力がかかりやすくなっているとみられる。
- Bank of Japan: Bank of Japan, Outlook for Economic Activity and Prices (October 2026), full text with background explanation
- 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.