Even with interest rates held steady, the Bank of Japan's view has changed—Comparing the October 'Outlook Report' with July
On October 30, 2026, the Bank of Japan held its policy interest rate steady at around 1.25%.
Meanwhile, the forecast for the consumer price index (CPI) excluding fresh food for fiscal year 2027 has been revised upward from 2.4% in July to 2.6%.
Interest rates held steady, inflation forecasts raised.
These two figures alone do not make it clear how the Bank of Japan is thinking about future monetary policy.
What I focused on this time, more than the forecast figures, is how the Bank of Japan evaluates the ‘current state’ of prices point.
Comparing the July and October Outlook Reports, it is clear that the assessment of the underlying inflation rate has progressed from ‘approaching 2%’ to ‘already at a level generally consistent with it’.
In this article, I will compare the primary sources from July and October to organize what has changed and what has not.
Note that the subject of this analysis is the ‘Basic View’ released on October 30. The full text, including detailed background explanations, is scheduled for release at 2:00 PM on November 2.
1. Interest rates held steady. How have inflation forecasts changed?
First, let’s confirm the decision and the forecast figures this time.
At the Monetary Policy Meeting on October 29-30, the target for the policy interest rate was maintained at around 1.25%. The decision was 8 to 1. A proposal by Board Member Takada to raise it to around 1.5% was rejected.
At the previous meeting in September, a hike to around 1.25% had been decided. This time, an additional rate hike was passed over.
Meanwhile, the following changes were made in the Outlook Report.
Comparison of inflation forecasts for July and October 2026
CPI excluding fresh food
Fiscal Year | July → October | Difference
2026 | 2.5% → 2.5% | 0.0pt
2027 | 2.4% → 2.6% | +0.2pt
2028 | 2.0% → 2.0% | 0.0pt
CPI excluding fresh food and energy
Fiscal Year | July → October | Difference
2026 | 2.5% → 2.4% | −0.1pt
2027 | 2.6% → 2.7% | +0.1pt
2028 | 2.2% → 2.3% | +0.1pt
Source: Bank of Japan, ‘Outlook for Economic Activity and Prices (July/October 2026) Basic View’. Figures are the median of the Policy Board members’ forecasts, year-on-year. pt stands for percentage points. The change is the value of October minus July.
Here, I will clarify two terms.
CPI (Consumer Price Index) is an indicator showing price fluctuations of goods and services purchased by households. ‘CPI excluding fresh food’ includes energy prices, but a series excluding energy is also published.
Also, the figures in the list above are forecasts for the entire fiscal year and differ from the actual monthly inflation rates announced.
The most notable change in the outlook is that the CPI excluding fresh food for fiscal year 2027 has been raised by 0.2 percentage points.
However, other movements are relatively small, and for the CPI excluding energy as well, the Bank of Japan considers the assessment for the entire outlook period to be largely unchanged.
The real GDP outlook is also assessed as largely unchanged overall, with fiscal year 2026 moving from 0.6% to 0.7%, fiscal year 2027 from 0.8% to 0.7%, and fiscal year 2028 remaining at 0.8%.
So, is the rise in the fiscal year 2027 price outlook because price increases driven by domestic demand and wages have become stronger than expected?
Actually, it is not that simple.
And, apart from the outlook figures, the Bank of Japan has indicated its recognition that the underlying inflation rate is already at a level generally consistent with the 2% target.
This is the important change this time.
In the following sections, we will delve into the background of these changes, organized with diagrams, and the points to watch for in the future from three perspectives.
・The reason for the rise in the fiscal year 2027 price outlook and the difference from the assessment of underlying inflation
・How to interpret the Japanese economy, where weak consumption coexists with strong AI-related exports and capital investment
・At what stage the Bank of Japan’s policy decision-making is, and what to look for from November onwards