The Bank of Japan lowered its inflation outlook while projecting that the domestic economy will maintain a moderate pace of growth despite external pressures from high crude oil prices, according to its quarterly Outlook Report released Friday.

The central bank reduced its median CPI forecast for fiscal 2026 to a range of 2.3% to 2.7%, down from April's projection of 2.8% to 3.0%. Inflation is projected to ease further to between 2.2% and 2.5% in fiscal 2027.

Policy board members project real GDP growth of 0.6% to 0.7% for fiscal 2026, lifting the lower end from 0.4% in April. Fiscal 2027 GDP is predicted to grow between 0.7% and 0.8%.

The BOJ expects underlying inflation to hover around its 2% target, supported by rising wages and prices and medium- to long-term inflation expectations.