The BOJ expects moderate economic growth
The Bank of Japan's July 2026 Outlook Report shows a median Policy Board forecast of 0.6% real GDP growth for fiscal 2026, followed by 0.8% in both fiscal 2027 and fiscal 2028. The BOJ expects higher oil prices linked to Middle East developments to weigh on activity, while AI-related demand and government measures provide support. Its baseline view is therefore that Japan will continue to grow moderately, although at a slower pace.
Core inflation is forecast at 2.5% this fiscal year
The median forecast for consumer prices excluding fresh food is 2.5% in fiscal 2026, 2.4% in fiscal 2027 and 2.0% in fiscal 2028. The BOJ points to oil, semiconductor-related prices and the effects of yen depreciation as factors keeping inflation above 2% before those pressures gradually ease. The central bank also states that, if the outlook is realized, it expects to continue raising the policy rate and adjusting the degree of monetary accommodation.
Real estate faces both nominal growth support and higher financing costs
Inflation can raise construction, maintenance and repair costs, while also providing a backdrop in which rents and nominal property values may rise. At the same time, higher interest rates increase mortgage payments and investment financing costs. Japan's property outlook therefore cannot be reduced to a simple assumption that inflation automatically lifts real estate prices. Wage and rent growth, development costs, interest rates and capitalization rates will interact. International investors must add exchange-rate movements to that list of macroeconomic variables.