Standard Chartered revises its Japan macro outlook, cutting 2026 Gross Domestic Product (GDP) growth to 0.7% and raising Consumer Price Index (CPI) inflation to 2.0% on a worsening terms-of-trade shock from higher Oil and a weak Japanese Yen (JPY). The bank warns that stagflationary risks have risen and expects the Bank of Japan (BoJ) to delay further tightening until Q3 2026.

Stagflation risks shape Japan outlook

"Stagflationary risks for Japan have risen significantly, with a USD 100/bbl oil price environment and a weak JPY affecting the consumption landscape."

"While February hard data showed a fragile recovery, sentiment weakened in March, indicating that the Middle East conflict is stalling domestic momentum."

"The BoJ’s ‘wait-and-see’ stance is now a necessity, in our view, with inflation currently driven by external supply shocks that domestic rate hikes cannot address."

"Market pricing of BoJ rate hikes is steadily converging with our view (c.27bps priced in by July and an additional 7bps priced in for September) as expectations of an April rate hike have been pared back."

"Navigating this growth-inflation trade-off will remain the primary challenge for policy makers through the second half of 2026, in our view."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)