JN BOJ Outlook Report

Japan's economic growth is likely to decelerate in fiscal 2026, since the rise in crude oil prices reflecting the impact of the situation in the Middle East is expected to push down corporate profits and households' real income through factors such as a deterioration in the terms of trade. However, the economy is expected to continue growing moderately, albeit at a decelerated rate, since it is likely to be underpinned by factors such as the government's various measures and accommodative financial conditions, in addition to developments such as continued high levels of profits in the corporate sector. Japan's economic growth rate is likely to rise moderately from fiscal 2027 onward, since it is projected that the adverse effects of high crude oil prices will wane and that a virtuous cycle from income to spending will gradually intensify. Just in | BOJ Forecasts Reduced Impact of High Crude Oil Prices Starting Fiscal 2027 Just in | BOJ Projects Core-Core CPI to Reach 2.2% by Fiscal 2028 Just in | BOJ Warns Prolonged High Crude Oil Prices Could Further Slow Economy Amid Falling Corporate Profits and Real Income. Just in | BOJ Warns: Major Supply Chain Disruptions Could Impact Japanese Production Activities.

Japan’s economy is likely to continue growing moderately, with overseas economies returning to a growth path, and as a virtuous cycle from income to spending gradually intensifies, supported by factors such as the government’s economic measures and accommodative financial conditions, while the economy is projected to be affected by trade and other policies in each jurisdiction. The year-on-year rate of increase in the consumer price index (CPI. all items less fresh food) is likely to decelerate to a level below 2 percent in the first half of this year, with the waning of the effects of the rise in food prices, such as rice prices, and partly due to the effects of government measures to address rising prices. However, it is likely that the mechanism in which wages and prices rise moderately in interaction with each other will be maintained, and that underlying CPI inflation will continue rising moderately. Thereafter, since it is projected that a sense of labor shortage will grow as the economy continues to improve and that medium- to long-term inflation expectations will rise, it is expected that underlying CPI inflation and the rate of increase in the CPI (all items less fresh food) will increase gradually and. in the second half of the projection period, be at a level that is generally consistent with the price stability target. Breaking | BOJ Highlights Need to Monitor U.S. Economic Factors, Including Tariff Effects on Employment and Corporate Profitability. BOJ: FUTURE DEVELOPMENT IN FOREX, IMPORT PRICES ARE PRICE RISK Just in | Bank of Japan Warns Rising Import Prices May Intensify Household Caution on Spending

Japan's economic growth is likely to be modest, as trade and other policies in each jurisdiction lead to a slowdown in overseas economies and to a decline in domestic corporate profits and other factors, although factors such as accommodative financial conditions are expected to provide support. Thereafter, Japan's economic growth rate is likely to rise, with overseas economies returning to a moderate growth path. The year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) is likely to decelerate to a level below 2 percent through the first half of fiscal 2026, with the waning of the effects of the rise in food prices, such as rice prices. Meanwhile, underlying CPI inflation is likely to be sluggish, mainly affected by the growth pace of the economy. Thereafter, since it is projected that a sense of labor shortage will grow as the economic growth rate rises and that medium- to long-term inflation expectations will rise, it is expected that underlying CPI inflation and the rate of increase in the CPI (all items less fresh food) will increase gradually and, in the second half of the projection period, be at BOJ QUARTERLY REPORT: UNDERLYING CONSUMER INFLATION LIKELY TO STAGNATE ON SLOWING GROWTH, BUT INCREASE GRADUALLY THEREAFTER UNDERLYING CONSUMER INFLATION LIKELY TO BE AT LEVEL GENERALLY CONSISTENT WITH 2% TARGET IN SECOND HALF OF PROJECTION PERIOD FROM FISCAL 2025 THROUGH 2027…

Japan's economic growth is likely to be modest, as trade and other policies in each jurisdiction lead to a slowdown in overseas economies and to a decline in domestic corporate profits and other factors, although factors such as accommodative financial conditions are expected to provide support. Thereafter, Japan's economic growth rate is likely to rise, with overseas economies returning to a moderate growth path. The year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) is likely to decelerate to a level below 2 percent through the first half of fiscal 2026, with the waning of the effects of the rise in food prices, such as rice prices. Meanwhile, underlying CPI inflation is likely to be sluggish, mainly affected by the growth pace of the economy. Thereafter, since it is projected that a sense of labor shortage will grow as the economic growth rate rises and that medium- to long-term inflation expectations will rise, it is expected that underlying CPI inflation and the rate of increase in the CPI (all items less fresh food) will increase gradually and, in the second half of the projection period, be at BOJ QUARTERLY REPORT: UNDERLYING CONSUMER INFLATION LIKELY TO STAGNATE ON SLOWING GROWTH, BUT INCREASE GRADUALLY THEREAFTER UNDERLYING CONSUMER INFLATION LIKELY TO BE AT LEVEL GENERALLY CONSISTENT WITH 2% TARGET IN SECOND HALF OF PROJECTION PERIOD FROM FISCAL 2025 THROUGH 2027…

Japan's economic growth is likely to moderate, as trade and other policies in each jurisdiction lead to a slowdown in overseas economies and to a decline in domestic corporate profits and other factors, although factors such as accommodative financial conditions are expected to provide support. Thereafter, Japan's economic growth rate is likely to rise, with overseas economies returning to a moderate growth path. • The year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) is likely to be in the range of 2.5-3.0 percent for fiscal 2025, in the range of 1.5-2.0 percent for fiscal 2026, and at around 2 percent for fiscal 2027. The effects of the recent rise in food prices, such as rice prices, are expected to wane. Meanwhile, underlying CPI inflation is likely to be sluggish, mainly due to the deceleration in the economy. Thereafter, however, underlying CPI inflation is expected to increase gradually, since it is projected that a sense of labor shortage will grow as the economic growth rate rises, and that medium- to long-term inflation expectations will rise. In the second half of the projection period, underlying CPI inflation is likely to be at a level that is generally consistent with the price stability target. Comparing the projections with those presented in the previous Outlook for Economic Activity and Prices (Outlook Report), the projected real GDP growth rates are more or less unchanged. The projected year-on-year rate of increase in the CPI (all items less fresh food) for fiscal 2025 is higher, mainly due to the effects of the rise in food prices. The projected rates of increase in this CPI for fiscal 2026 and 2027 are more or less unchanged. There are various risks to the outlook. In particular, it remains highly uncertain how trade and other policies in each jurisdiction will evolve and how overseas economic activity and prices will react to them. It is therefore necessary to pay due attention to the impact of these developments on financial and foreign exchange markets and on Japan's economic activity and prices. With regard to the risk balance, risks to econo BOJ Report: Uncertainty surrounding each country's trade negotiations, and their impact on both domestic and global economies and prices, remains elevated. BOJ REPORT: RISKS TO INFLATION OUTLOOK ROUGHLY BALANCED REAL INTEREST RATES ARE AT EXTREMELY LOW LEVELS MUST HAVE NO PRE-CONCEPTION IN JUDGING WHETHER ECONOMY, PRICES MOVING IN LINE WITH FORECAST WILL CONDUCT MONETARY POLICY AS APPROPRIATE FROM PERSPECTIVE OF SUSTAINABLY,…