The OECD expects Japan’s central bank to raise policy rates to 2% by end-2027 amid wage growth and inflation convergence.
The Bank of Japan is projected to increase its short-term policy rate to 2% by the end of 2027, up from the current 0.75%. The forecast follows signs of sustained wage growth and a closed output gap, signaling Japan’s exit from decades of deflationary pressures.
Japan’s economy is expected to expand 0.7% in 2026 and 0.9% in 2027, down from 1.2% growth in 2023. Inflation is forecast to align with the BOJ’s 2% target over the same period, supporting further monetary tightening.
The OECD recommended the BOJ adjust its bond purchase strategy if market disruptions arise, noting heightened volatility in Japanese government bonds as the bank tapers its holdings. A review of the taper plan is scheduled for the June 15-16 policy meeting.