Japan cuts fiscal 2026 growth forecast to 0.9% as oil prices rise

Japan lowered its real gross domestic product growth forecast for fiscal 2026 to 0.9% from 1.3%, as higher crude prices tied to Middle East tensions are expected to weigh on personal consumption and capital investment. The Cabinet Office's mid-year outlook, presented to the Council on Economic and Fiscal Policy on July 30, also raised the consumer price index forecast to 2.2% from 1.9% and cut projected growth in private consumption to 0.9% from 1.3% and capital investment to 2.3% from 2.8%. Nominal GDP growth was set at 3.0%, while real GNI was sharply reduced to 0.6% from 1.7%, indicating that worsening terms of trade are eroding purchasing power through income outflows overseas; this is the first time since fiscal 2022 that real GNI growth has fallen below real GDP growth. On the fiscal side, the government now expects the primary balance for central and local governments to improve to a deficit of 200 billion yen in fiscal 2025, reach a deficit of 1.2 trillion yen in fiscal 2026, and turn to a surplus of 1.4 trillion yen in fiscal 2027, helped by an assumed 3.4 trillion-yen increase in tax revenue. Prime Minister Sanae Takaichi said the figures show Japan will achieve a surplus from fiscal 2027 onward, though the Cabinet Office also warned that under a baseline scenario of continued low growth, the surplus could shrink and return to deficit by the mid-2030s.