IMF Revises Up Japan's Growth Forecast, Sees Inflation Moderating

• The International Monetary Fund (IMF) on Monday, January 19, 2026, revised Japan's economic growth forecast for 2026 slightly upwards, reflecting a boost from the government's fiscal stimulus package.
• In its latest World Economic Outlook, the IMF now projects Japan's economy will expand by 0.7% this year. This marks a 0.1 percentage point increase from its previous estimate, though it represents a slowdown from the 1.1% growth anticipated for 2025. Looking further ahead, the IMF expects growth to moderate to 0.6% in 2027.
• The revised outlook comes as Japan navigates a complex policy environment. Prime Minister Sanae Takaichi's administration has assembled a record $783 billion budget for the 2026 fiscal year, bolstered by a large stimulus package aimed at easing the burden of rising living costs on households.
• The IMF noted that it expects Japan to maintain this stimulating fiscal policy in the near term. At the same time, the Bank of Japan (BOJ) is contending with inflation that has remained above its 2% target for nearly four years. In response, the central bank raised its policy rate to 0.75% in December, a 30-year high. BOJ Governor Kazuo Ueda has signalled a readiness to continue raising borrowing costs if necessary.
• The IMF anticipates that Japan's inflation will begin to moderate in 2026 and align with the central bank's target by 2027 as pressures from food and commodity prices subside. In line with this forecast, the institution expects the Bank of Japan will proceed with gradual policy rate hikes, carefully balancing economic support with the need to manage inflation.

(Sources: Reuters and Fastbull)