FX.co ★ Japan Lowers Economic Growth Outlook as Energy Costs Bite

Japan’s Cabinet Office on Thursday lowered its fiscal 2026 real GDP growth forecast to 0.9% from 1.3%, citing higher oil prices linked to tensions in the Middle East that are dampening household spending and corporate profits. The mid-year outlook anticipates a recovery in fiscal 2027, with growth expected to accelerate to 1.1% on the back of stronger consumption and investment. The projection for private consumption growth in fiscal 2026 was reduced to 0.9% from 1.3%, while capital expenditure is now forecast to increase 2.3%, down from the previous estimate of 2.8%. Inflation is expected to reach 2.2%, up from 1.9%, reflecting persistently elevated energy costs. Despite ongoing price pressures, nominal wages are projected to rise by 3.1% annually through fiscal 2027, supporting continued positive real wage growth. The Cabinet Office also forecasts that the primary budget balance will return to a surplus of JPY 1.4 trillion in fiscal 2027, although the government has recently placed less emphasis on this balance as its key indicator of fiscal discipline.