IMF revises up Japan's growth forecast, sees inflation moderating

By Leika Kihara

TOKYO, Jan 19 (Reuters) - The International Monetary Fund on Monday slightly revised up Japan's economic growth forecast for 2026, reflecting a boost from the ?government's fiscal stimulus package.

Japan's economy will likely expand 0.7% ?this year, the IMF said in an updated ?World Economic Outlook, up 0.1 ?percentage point from ?its previous forecast but slower than a 1.1% ?increase in 2025.

For 2027, the ?IMF expects Japan's economy to grow 0.6%.

In addition, the IMF said ?Japan was likely ?to raise ?its policy rate gradually and keep a stimulating fiscal policy in the near term.

"Inflation is ?expected to moderate in 2026 and converge toward the country's target in 2027, as food and commodity prices ease," the IMF said.

Prime Minister Sanae Takaichi's administration has ?compiled a ?record $783 billion budget for fiscal 2026, on top of a huge stimulus package ?focused on cushioning the blow to households from rising living costs.

With inflation exceeding its 2% target for nearly four years, the Bank of Japan raised its policy rate to a 30-year high ?of 0.75% in December. Governor Kazuo Ueda has stressed the central bank's readiness to continue elevating still-low borrowing costs. (Reporting ?by Leika Kihara; Editing by Thomas Derpinghaus)