Should the package gain approval in parliament with backing from opposition parties, it may result in a significant increase in GDP during the first half of 2026. We have to monitor how the final package is shaped, but given the considerable size of the bill, it will likely boost near-term growth. In turn, we now expect GDP to grow 1.4% year-on-year in 2026 (vs 0.7% currently).
For inflation, the energy subsidy will lower headline inflation quite meaningfully during the wintertime, although it should be partially offset by the weaker yen. Headline inflation is expected to fall below 2% throughout next year. However, core-core inflation excluding food and energy is likely to remain above 2% for a considerable time.
Reflecting on the inflation measures, we have revised down our CPI outlook for 2026. We now expect headline inflation to rise 2.0% YoY (vs the current 2.3%), and core-core inflation to increase 2.6% (vs 2.7% currently) as the stimulus package strengthens demand side pressures and keeps the JPY under pressure.