Institutions predict the Bank of Japan will postpone its interest rate hike from June to July.

According to Mars Finance, Shigeto Nagai, Head of Japan Economics at Oxford Economics, stated that given the possibility of stagflation in the Japanese economy, they now expect the Bank of Japan to postpone its next interest rate hike from June to July. Thereafter, they anticipate the central bank will continue to gradually raise rates in the first and third quarters of 2027. In the short term, rising energy costs will re-accelerate supply-side driven inflation. They now believe that core CPI will not return to 2% until the second quarter of 2027, rather than the fourth quarter of 2026. Despite the expected strong results of the spring wage negotiations, higher inflation will limit real income growth. Therefore, they have lowered their 2026 real GDP growth forecast by 0.4 percentage points to 0.3%. Despite concerns about inflationary pressures and a weaker yen, they believe the Bank of Japan may become more cautious about raising interest rates, prioritizing the impact of rate hikes on corporate profits and real household income.