The International Monetary Fund (IMF) expects the Bank of Japan to raise interest rates gradually, at a slightly faster pace than projected six months ago, moving toward a neutral rate of about 1.5%.

Japan's economic growth is projected to decline from 1.2% in 2025 to 0.7% in 2026 and further to 0.6% in 2027, according to its latest World Economic Outlook report released Tuesday.

The 2026 growth forecast was revised upward from the October 2025 figure due to a new fiscal stimulus package, stronger domestic-demand-driven carryover from 2025, and government measures to limit higher energy prices.

Inflation in Japan is expected to moderate in 2026 relative to 2025 and converge toward the country's target by the end of 2027 as food and commodity prices ease.

Japan's fiscal deficit is projected to widen by 1 percentage point of GDP in 2026, with moderately expansionary fiscal policy expected to continue through 2030.