Japan trims FY2026 growth forecast to 0.9% amid soaring oil prices

Tokyo’s Cabinet Office announced on Thursday that the government now expects the economy to grow only 0.9% in fiscal 2026, down from a prior 1.3% projection, after crude oil prices surged to roughly $92 a barrel and the yen weakened to about 161 per dollar. The outlook notes that the weaker currency and higher import-costs from the Middle-East conflict threaten growth, despite recent wage increases and energy-cost subsidies that have buoyed household consumption.

Looking ahead, the administration forecasts a 1.1% expansion for fiscal 2027, driven by Prime Minister Sanae Takaichi’s plan to boost spending on crisis-management and strategic growth areas. The report does not factor in a proposed two-year consumption-tax cut on food and drinks slated for April 2027. Primary-balance projections show a deficit of 1.2 trillion yen for FY2026, widening from the June estimate, but a surplus of 1.4 trillion yen is projected for FY2027 if growth holds. The government continues to target a gradual reduction of the debt-to-GDP ratio rather than a single-year primary-balance surplus.