BNP Paribas forecasts Japan’s GDP growth slowing to 0.8% in 2026 amid inflation and energy costs despite BoJ tightening.
BNP Paribas strategists project Japan’s GDP growth will decelerate to 0.8% in 2026 from 1.1% in 2025, citing higher inflation and energy-related costs. Fiscal support and AI investment are expected to partially offset the slowdown.
The Bank of Japan is anticipated to continue gradual rate hikes, raising the policy rate by 25 basis points every four to five months, targeting a 2.50% terminal rate by 2028. Despite this tightening, USD/JPY is forecast to reach 165 by Q4 2026, reflecting persistent yen depreciation.
Long-term yields in Japan remain elevated, driven by public debt levels and the pace of monetary adjustment. The yen and GBP are both expected to weaken against the dollar through 2027.