Bank of Japan Seen Lifting Growth Forecast While Watching Inflation Overshoot Risk

The Bank of Japan is expected to raise its economic growth forecast for fiscal 2026 in the quarterly outlook report due later this month, while continuing to emphasise the risk that inflation overshoots its 2% target, according to reports citing sources. The signal reinforces expectations that the central bank remains on a tightening path after it lifted its policy rate to 1% in June, the highest level since 1995. Officials have grown more concerned about upside price pressures as companies pass on higher import and energy costs stemming from the Middle East conflict, with wholesale inflation accelerating. Deputy Governor Ryozo Himino has warned there is a risk underlying inflation deviates upward from target, while board member Naoki Tamura has argued for quarter-point increases at intervals of a few months toward a neutral rate of around 2%, and for accelerating that pace without hesitation if price risks intensify. Support is not unanimous: at least one board member has cautioned that higher rates could curb business investment and weaken demand. Recent data have been encouraging, with the June Tankan survey showing manufacturer sentiment at its strongest since 2018.