Institution: It is expected that the Bank of Japan will postpone the interest rate hike from June to July

Shigeto Nagai, the head of Japan's economy at the Oxford Economic Institute, stated that considering the possibility of stagflation in the Japanese economy, we currently expect the central bank to postpone the next interest rate hike from June to July. After that, the central bank is expected to continue gradually raising interest rates in the first and third quarters of 2027. In the short term, rising energy costs will accelerate supply-side driven inflation again.

We now believe that the core CPI will not return to 2% until the second quarter of 2027, instead of the fourth quarter of 2026. Although the results of the spring wage negotiations are expected to be strong, higher inflation will limit real income growth.

Therefore, we have lowered our 2026 real GDP growth forecast by 0.4 percentage points to 0.3%. Despite concerns about inflation expectations and a weak yen, we believe the Bank of Japan may become more cautious about interest rate hikes, prioritizing the impact of rate increases on corporate profits and real household income.