Bank of Japan's upward inflation spiral: unpacking forecast revisions with Point-in-Time data

Two years ago, the Bank of Japan was seeking sustained inflation before it would end the world's last negative-rate policy.

Today, we can illustrate how the central bank got its wish thanks to CEIC's market-leading Point-in-Time (PiT) datasets, which track the Bank of Japan's forecast revisions for inflation.

We charted the four most recent forecasts for 2025 and 2026 inflation. They have steadily ticked higher: 2025 core consumer inflation (which excludes volatile fresh food costs, but includes energy) is now expected to hit 2.4% this year, up from 1.9% in the central bank's April 2024 estimates. For 2026, core inflation is seen at 2%, according to the BoJ's January update; three months earlier, it was estimating price increases would be 1.9%. (The next updated projections will be released after the April 30-May 1 meeting.)

Our Point-In-Time data package provides valuable context for both developed and emerging market indicators, with over 10 years of revision history. And it also manages the potential complexity for modeling and backtesting - where even slight revisions can result in substantially different forecasting outcomes.

Our subsequent charts examine Japan's turn from deflation to sustained inflation in greater detail.

Headline inflation has remained above the BoJ's 2% target for nearly three years. However, inflation for Tokyo, which serves as a leading indicator for the whole country, slowed to a 2.8% year-on-year pace in February; that was due to the temporary resumption of subsidies for electricity and gas. (They are set to expire in April.)

Nationwide inflation data for February is due for release on March 21. In line with that Tokyo trend, price increases are expected to cool after reaching a two-year high in January. However, given the distortion from the energy subsidies, this cooling is seen as unlikely to deter the BoJ from its gradual rate-hiking path.

Meanwhile, sticky food and fuel-price pressures are raising doubts about expectations that cost-push inflation would ease. As our third chart reveals, the "food excluding fresh food" category (which includes Japan's substantial appetite for imported food) and energy costs have been the dominant contributors. Prices for rice have been soaring in Japan since last summer, reaching a 71% annualized pace in January; prices for this key staple are expected to stay high for the rest of 2025. (Explore contributions to inflation for other countries here.)

The BoJ is also closely watching the outcome of the annual "Shunto" negotiations between large companies and labor unions. The Japanese Trade Union Confederation (Rengo) has launched its most aggressive wage campaign in more than 30 years, reportedly demanding a 6.1% average increase (JPY 19,244) for 2025, following last year's 5.1% settlement. Last week, Japanese companies counteroffered with a 5.5% increase.

For now, the BoJ held interest rates steady, as expected. But the central bank has signaled its readiness for further rate hikes if incomes prove robust enough to sustain the economy: it seeks a "virtuous cycle" where sustained wage growth boosts consumer spending, strengthens demand, and stabilizes inflation around its 2% target.