Yasuko Koido 
We have raised our CPI forecast for Japan for this year and next, reflecting a revised profile for oil prices. We now expect core-core CPI (excluding fresh foods and energy) will stay elevated for an extended period, falling to 2% only in Q4 2027, instead of Q2 2026 as expected two months ago.
The Bank of Japan (BoJ) kept its policy rate at 0.75% at its March meeting. We now project the central bank will delay the next rate hike to July from June given the economy could fall into stagflation. Thereafter, the bank is projected to continue gradual rate hikes in Q1 and Q3 2027.
A sweeping reset of global trade policies under Trump 2.0 have triggered a sharp global pullback in foreign direct investments, yet Asia has shown notable resilience. In a study for the Hinrich Foundation, Oxford Economics examines how structural shifts in Factory Asia and China’s rise as a regional investor have been reshaping regional capital flows. The report explores what these changes mean for the trajectory of Asia’s FDI in a rapidly changing global environment.
The past year has seen a reshaping of long-run risks, with rising trade uncertainty, threats of US isolationism, and accelerating AI investment. This is highlighted by our Global Risk Survey, which captures what clients perceive as key risks and informs how we update our Megatrends Scenarios.
We’ve raised our terminal rate assumption for the Bank of Japan to 1.5% from 1% in February. This reflects changes in our estimate for Japan’s neutral interest rate, r* – the equilibrium level at which the policy rate should eventually settle – resulting from recent revisions to GDP, a new fiscal policy outlook, and rising inflation expectations.
The ruling Liberal Democratic Party’s (LDP) landslide election victory on Sunday doesn’t change our expectation of a primary fiscal deficit of 2%-3% of GDP in FY2026-FY2028 – we still see the deficit only starting to decline from FY2029. We also keep our view that the 10-year Japanese government bond (JGB) yield will be at 2.3% at end-2026 and 2.5% at end-2027 and beyond.
In our upcoming February forecast update, we’ll stick to our expectation of a primary fiscal deficit of 2%-3% of GDP in FY2026 and FY2027, but now think it will remain at that level in FY2028, only starting to gradually decline in FY2029 and beyond.
Today, Asia sits second in global data centre market share, behind North America, and the growth in capacity is set to expand by double digits over the next few years.
Japanese government bond yields have surged over the past few weeks. Here, we answer the most frequently asked questions about why this is happening and what it means for Japanese policy.
We expect the ongoing memory chip shortage to be particularly harmful for the purchasers of traditional memory chips such as electronics, electrical machinery, and automobile manufacturers. The IT services sector will also be hit, but strong demand for AI and higher profit margins will partly shield them.
We have upgraded our outlook for business investment and productivity in Japan following the December transition to 2020 as the base year used to estimate GDP. The new figures show that software investment by SMEs since the 2010s has been much stronger than previously thought.
The Bank of Japan raised its policy rate by 0.25ppts to 0.75% at its meeting on Friday, which the dovish government had to accept in face of yen weakening pressures. Although we still project another hike to a terminal rate of 1% in mid-2026, the BoJ could find it more difficult to justify this if inflation eases towards 2% in H1 2026 and pressure on the yen fades.
We’ve changed our fiscal outlook for Japan in our December forecast round. We now expect the new government to set a primary deficit close to that of 2024, at 2%-3% of GDP for 2025-2027, instead of restoring a balanced budget by taking advantage of strong tax revenue. We assume higher bond yields will force the government to take measures to reduce the deficit from 2028.
EMDEs are projected to account for 70% of global CO₂ emissions by 2050, making accelerated emissions reductions in these economies essential. Yet gaps in AE leadership—such as US policy rollbacks and insufficient climate finance—risk slowing the global transition.
We modelled how advanced-economy leadership in innovation and finance could accelerate a global low-carbon transition.
The Bank of Japan (BoJ) kept its policy rate at 0.5% at its October meeting, after a 7-2 majority vote. Two board members again voted for a rate increase. We believe the BoJ will hike in December to 0.75% as incoming data confirm that the economy is performing in line with the bank’s forecasts in its quarterly outlook. However, there’s a material chance of a delay.
We’ve brought forward the timing of the next Bank of Japan (BoJ) 25bps rate hike to December from next year and have added another 25bps hike in mid-2026. This reflects the surprisingly hawkish shift in the BoJ’s view since its September policy meeting and upward revisions to our growth and inflation projections, driven by the US economy’s resilience.
At its monetary policy meeting on Friday, the Bank of Japan (BoJ) unexpectedly announced it would start to sell its ETF and Japanese real estate investment trust (J-REIT) holdings. We think the impact of this plan on financial markets will likely be limited because the BoJ is opting to play it safe in terms of the process and the scale.
Research Briefing High uncertainty means a cautious the Bank of Japan
Software investment in Japan has risen sharply since the late 2010s, outpacing investment overall. We expect this high rate of growth to continue as the economy undergoes a digital transformation and the acute shortage of labour continues, driven by adverse demographics.
