BOJ Outlook Report (展望レポート)
Bank of Japan's quarterly economic and price outlook - the definitive forward guidance
BOJ Outlook Report (展望レポート)
Full name: Outlook for Economic Activity and Prices (経済・物価情勢の展望)
Published by: Bank of Japan Policy Board
Release: Quarterly - Late April, July, October, January (after MPM)
What it measures: BOJ’s official forecasts for GDP growth and inflation over 3-year horizon
The Outlook Report is the most important forward guidance document from the BOJ—more consequential than Tankan or monthly indicators—because it:
- Reveals BOJ’s policy path: Forecasts imply rate trajectory
- Board consensus: Approved by 9 Policy Board members (not just governor)
- Probabilistic forecasts: Fan charts show uncertainty and risk balance
- Policy commitment: Deviations from forecasts trigger policy adjustments
Market impact: Outlook Report releases routinely move 10Y JGB yields by 10-20bp when forecasts shift meaningfully.
Structure of the Report
Core Forecasts (Median of Policy Board Members)
Real GDP growth:
- Current fiscal year (FY)
- Next FY
- Following FY
CPI inflation (ex-fresh food, BOJ’s target measure):
- Current FY
- Next FY
- Following FY
Example (October 2024 Outlook Report):
| Metric | FY2024 | FY2025 | FY2026 |
|---|---|---|---|
| Real GDP | +0.6% | +1.0% | +1.0% |
| CPI (ex-fresh food) | +2.5% | +2.1% | +2.0% |
Interpretation:
- GDP: Modest growth, slightly below potential (~1.2%)
- Inflation: Sustained above 2% target through FY2026 ← Key signal!
- Policy implication: If inflation stays >2%, BOJ will continue normalization → Higher JGB yields
Fan Charts: Visualizing Uncertainty
The Outlook Report includes “fan charts”—probability distributions around base forecasts.
How to Read Fan Charts
Center line (darkest): Median forecast (50th percentile)
Shaded bands: Probability ranges
- Dark shading (50% probability): Outcome within this range 50% likely
- Lighter shading (70% probability): Outcome within this broader range 70% likely
Width of fan: Degree of uncertainty
- Narrow fan: BOJ confident in forecast
- Wide fan: High uncertainty (e.g., during COVID)
Risk Balance Assessment
BOJ explicitly states whether risks to forecasts are:
- Balanced: Upside and downside risks equal
- Tilted to upside: More likely to overshoot than undershoot
- Tilted to downside: More likely to undershoot than overshoot
Example (October 2024 assessment):
- GDP growth risks: “Broadly balanced” (external demand uncertainty vs. domestic resilience)
- Inflation risks: “Tilted to upside” (wage growth, services inflation stronger than expected)
Market interpretation:
- Upside inflation risk + sustained >2% forecast = BOJ will tighten more → 10Y JGB yields rise
- Downside growth risk + below-target inflation = BOJ stays accommodative → Yields fall
Historical Forecast Accuracy
The BOJ has historically been:
- Too optimistic on growth (overestimated GDP 2013-2019)
- Too pessimistic on inflation (underestimated CPI 2022-2024)
Growth Forecasts vs. Reality (FY basis)
| Fiscal Year | BOJ Forecast (April prior year) | Actual | Miss |
|---|---|---|---|
| FY2018 | +1.4% | +0.3% | -1.1ppt (too optimistic) |
| FY2019 | +0.8% | -0.4% | -1.2ppt (too optimistic) |
| FY2020 | +1.2% | -4.5% | -5.7ppt (COVID shock) |
| FY2021 | +4.0% | +2.6% | -1.4ppt (too optimistic) |
| FY2022 | +2.9% | +1.8% | -1.1ppt (too optimistic) |
| FY2023 | +1.8% | +1.9% | +0.1ppt ✓ |
Pattern: BOJ consistently overestimates growth → Markets discount growth forecasts by ~1ppt
Inflation Forecasts vs. Reality
| Fiscal Year | BOJ CPI Forecast (April) | Actual | Miss |
|---|---|---|---|
| FY2019 | +1.1% | +0.5% | -0.6ppt |
| FY2020 | +0.7% | -0.4% | -1.1ppt (COVID deflation) |
| FY2021 | +0.6% | +0.9% | +0.3ppt |
| FY2022 | +1.9% | +3.2% | +1.3ppt (too pessimistic!) |
| FY2023 | +1.8% | +2.8% | +1.0ppt (too pessimistic!) |
| FY2024 | +2.4% | ~2.5% (est.) | Close ✓ |
Turning point: Post-2022, BOJ finally underestimated inflation → Markets now believe “sustained 2%” forecasts → Policy normalization credible
JGB Market Impact: How Traders Use the Outlook Report
Release timing: ~2:00 PM JST, immediately after MPM statement and press conference begins
Pre-positioning (1-2 days before MPM):
- Economists publish forecast estimates
- Bloomberg consensus: Expected revisions to GDP/CPI
- JGB futures options price in ~10bp expected volatility
What Markets Look For (Priority Order)
1. FY+1 and FY+2 CPI forecasts ⭐⭐⭐⭐⭐
- If >2.0% for both years: BOJ will normalize policy → Yields rise
- If <2.0% for either year: BOJ stays accommodative → Yields fall
2. Forecast revisions from prior report
- Upward inflation revision: Hawkish → Yields rise
- Downward growth revision: Dovish → Yields fall (unless inflation still >2%)
3. Risk balance assessment
- Upside inflation risk: Hawkish tilt → Yields rise
- Downside growth risk: Dovish tilt → Yields fall
4. Fan chart width
- Narrowing: BOJ more confident → Policy action more likely
- Widening: Uncertainty → Policy on hold longer
Forecast Change Impact Formula
Empirical relationship (2013-2024 data):
\[\Delta \text{10Y Yield (bp)} \approx 8 \times \Delta \text{CPI FY+1 Forecast (ppt)}\]Example calculation (April 2024 Outlook Report):
- Previous (January 2024): FY2025 CPI forecast = +1.8%
- New (April 2024): FY2025 CPI forecast = +2.1%
- Change: +0.3ppt upward revision
- Expected yield impact: 8 × 0.3 = +2.4bp
- Actual: 10Y JGB rose 0.73% → 0.78% (+5bp, larger than model due to wage data confluence)
Historical Outlook Report Market Reactions
| Date | Key Change | 10Y JGB Reaction | Explanation |
|---|---|---|---|
| Oct 2022 | FY2023 CPI: +1.6% → +2.9% (+1.3ppt) | +8bp | First >2% sustained forecast in decade |
| Jan 2023 | FY2024 CPI: +1.8% → +2.0% (+0.2ppt) | +5bp | Confirmed sustained inflation |
| Apr 2023 | Risk balance: Neutral → Upside tilt (inflation) | +7bp | Hawkish shift without forecast change |
| Oct 2023 | FY2024 CPI: +2.0% → +2.8% (+0.8ppt) | +12bp | Large upward revision |
| Jan 2024 | FY2025 CPI: +1.8% (below 2%!) | -5bp | Disappointed hawks, YCC exit doubts |
| Apr 2024 | FY2025 CPI: +1.8% → +2.1% (+0.3ppt) | +5bp | Above-target sustained, YCC exit done |
| Oct 2024 | FY2026 CPI: +2.0% (new year added) | +8bp | 3-year horizon all >2% = normalization path |
Critical April 2024 case: Report released 2 weeks AFTER March YCC exit → Validated BOJ’s decision retrospectively → Market priced in further rate hikes → Yields rose despite YCC already gone.
Policy Implications: Reading Between the Lines
Interpreting BOJ’s Language
The Outlook Report includes narrative assessment of economic conditions. Key phrases signal policy direction:
| Phrase | Meaning | Policy Implication |
|---|---|---|
| “Inflation is likely to be sustained around 2%” | Confidence in target achievement | Rate hikes coming |
| “Upside risks to inflation have heightened” | More likely to overshoot | Accelerated normalization |
| “Downside risks to growth remain” | Concern about recession | Slower/paused normalization |
| “Virtuous cycle between wages and prices” | Self-sustaining inflation | Target achieved, tighten |
| “One-off factors affecting inflation” | Temporary price spikes, not sustainable | Stay accommodative |
| “Uncertainty surrounding outlook is high” | BOJ doesn’t know what will happen | Policy on hold |
Example (October 2024 Report - actual language):
“Japan’s economy is likely to continue growing at a pace above its potential growth rate. The year-on-year rate of increase in the CPI is likely to be at around 2 percent through fiscal 2026.”
Market interpretation:
- “Above potential” = No output gap = No deflationary pressure
- “Around 2 percent through fiscal 2026” = Sustained achievement of target
- Policy implication: BOJ will continue raising rates toward neutral (~1.0-1.5%) over next 2-3 years
- 10Y JGB reaction: +8bp (normalization path confirmed)
Comparing Outlook Report to Other Indicators
The Outlook Report synthesizes all other economic data into BOJ’s official view.
Consistency Checks Markets Perform
1. Outlook vs. Recent Data
- If CPI forecasts rise but recent CPI declining: Markets skeptical, yields muted
- If CPI forecasts rise AND recent CPI rising: Credible, yields spike
2. Outlook vs. Tankan
- Strong Tankan DI + upward growth forecasts: Consistent, priced smoothly
- Weak Tankan DI + upward growth forecasts: Inconsistent, markets doubt BOJ
3. Outlook vs. Wage Data
- Shunto +5% + inflation >2% forecast: Wage-price spiral confirmed, hawkish
- Shunto +2% + inflation >2% forecast: Unsustainable, dovish interpretation
Example of consistency (April 2024):
- March 2024 Shunto: +5.3% (record)
- March CPI: +2.6% (ex-fresh food)
- April Tankan: Large mfg DI +11 (strong)
- April Outlook: FY2025 CPI +2.1% (sustained above 2%)
- All indicators aligned → 10Y JGB: 0.73% → 0.95% (+22bp over 2 months)
Key Takeaways
-
Outlook Report is BOJ’s policy roadmap: FY+1 and FY+2 CPI forecasts >2% = Rate hikes coming; <2% = Accommodation continues
-
Forecast revisions matter more than levels: +0.3ppt upward CPI revision = ~+8bp yield move; Cumulative revisions over multiple reports drive major trends
-
Risk balance assessment adds hawkish/dovish tilt: “Upside inflation risks” signals BOJ may tighten faster than forecasts imply; “Downside growth risks” = cautious approach
-
Historical accuracy improved post-2022: BOJ underestimated inflation 2022-2024 → Markets now trust “sustained 2%” forecasts → Policy normalization credible
-
Language matters as much as numbers: “Virtuous cycle between wages and prices” = Mission accomplished; “One-off factors” = Stay patient → Read narrative carefully
-
Fan charts show confidence level: Narrowing fan = BOJ more certain → Policy action likely; Widening fan = High uncertainty → Wait-and-see mode
-
Consistency with other data validates forecasts: Outlook Report + strong Tankan + rising wages + high CPI = Powerful alignment → Large yield moves (±20bp)
Conclusion
The BOJ Outlook Report represents the culmination of all economic analysis—the Policy Board’s official view on Japan’s economic trajectory and, implicitly, the path of monetary policy. Unlike monthly indicators that provide data points, the Outlook Report provides:
- Forward guidance through 3-year forecast horizon
- Policy commitment (BOJ must explain deviations in future reports)
- Consensus view (9 Board members, not just governor’s opinion)
- Probabilistic framework (fan charts acknowledge uncertainty)
For JGB traders, the Outlook Report is essential for:
- Anticipating rate trajectory: FY+1/FY+2 CPI >2% = Normalization continues → Higher yields
- Gauging policy confidence: Narrow fan charts + upside risk tilt = Accelerated tightening
- Validating other data: Consistency between Outlook and Tankan/wage/CPI data = Momentum confirmed
- Positioning around MPM: Pre-position based on expected forecast changes → Trade the surprise
Historical precedent: The October 2022 Outlook Report marked the turning point when BOJ first forecast sustained inflation >2% (FY2023 +2.9%, FY2024 +1.6%→+2.0% in subsequent revisions). This triggered the beginning of YCC policy adjustments (December 2022 band widening) and ultimately March 2024 YCC exit. The Outlook Report provided the roadmap 18 months in advance—patient traders who positioned for normalization based on those forecasts captured the entire 0.25% → 1.00% yield move (+75bp).
Understanding how to decode the Outlook Report’s forecasts, risk assessments, and narrative language is fundamental to anticipating BOJ policy shifts and positioning JGB portfolios accordingly.
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