The Bank of Japan (BoJ) raised its inflation forecast for 2025 by a tenth to 1.9% in its quarterly economic outlook report and gave a first estimate for 2026, also 1.9%.

The institution judged that while the impact of rising import costs will diminish, inflation is likely to remain elevated in 2025 due to oil prices and the end of government measures to try to curb consumer price increases.

Inflation in Japan hit 2.6% in March and has been above the BoJ's 2% target for two years, initially due to higher energy costs stemming from the war in Ukraine and now because of rising food prices.

In contrast, the BoJ cut its estimate for economic growth in the fiscal year to March 31, 2023, to 1.3% from 1.8%, and lowered its forecast for the current fiscal year to 0.8% from 1.2%, due to weak consumption.

"The Japanese economy has picked up moderately, although some weakness has been observed," the report said, adding that exports and industrial production had been resilient.

The central bank justified the downward revision by saying that private consumption, which accounts for about 60% of the economy, was likely to remain weak, even though companies and unions recently agreed the biggest wage increases in three decades.

For fiscal 2025, the BoJ maintained its forecast that Japan's gross domestic product will expand by 1%, the same as its projection for 2026.

The institution also decided on Wednesday to keep its ultra-loose monetary policy unchanged, a month after raising its short-term policy rate to 0.1% for the first time since 2007.

In a statement, the Japanese central bank said the policy board's decision was made by a unanimous vote.

After the announcement, the Japanese currency fell further, breaking the 155-yen-per-dollar mark for the first time since May 1990.

"Developments in financial and foreign exchange markets, and their impact on Japan's economic activity and prices, warrant careful attention," the BoJ said in the statement.

Hours earlier, Japan's finance minister said he was ready to intervene to stop the yen's sharp decline.

"We are concerned about the negative side of a weaker yen," Shunichi Suzuki said, adding that addressing rising prices was a priority for the government.

A weak yen tends to boost the stock market as it inflates exporters' overseas earnings, but it also increases the cost of importing energy and raw materials, on which Japan relies.

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