IMF revises up Japan's growth forecast, sees inflation moderating

[TOKYO] The International Monetary Fund on Monday (Jan 19) slightly revised up Japan’s economic growth forecast for 2026, reflecting a boost from the government’s fiscal stimulus package.

Japan’s economy will likely expand 0.7 per cent this year, the IMF said in an updated World Economic Outlook, up 0.1 percentage point from its previous forecast but slower than a 1.1 per cent increase in 2025.

For 2027, the IMF expects Japan’s economy to grow 0.6 per cent.

In addition, the IMF said Japan was likely to raise its policy rate gradually and keep a stimulating fiscal policy in the near term.

“Inflation is expected to moderate in 2026 and converge toward the country’s target in 2027, as food and commodity prices ease,” the IMF said.

Prime Minister Sanae Takaichi’s administration has compiled a record US$783 billion budget for fiscal 2026, on top of a huge stimulus package focused on cushioning the blow to households from rising living costs.

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With inflation exceeding its 2 per cent target for nearly four years, the Bank of Japan raised its policy rate to a 30-year high of 0.75 per cent in December. Governor Kazuo Ueda has stressed the central bank’s readiness to continue elevating still-low borrowing costs. REUTERS