Japan output exceeds capacity the most in 9 years

Steady growth: A labourer works at a port in Tokyo. Japan’s economy expanded at an annualised 2.5 in the second quarter. — Reuters

TOKYO: Japan’s economy saw output exceed full capacity by the most in nine years in the April-June quarter, a Bank of Japan (BoJ) estimate showed, a positive sign for the central bank as it seeks to accelerate inflation to its elusive 2% target.

The output gap, which measures the difference between an economy’s actual and potential output, stood at plus 1.22% in April-June, staying in positive territory for the third straight quarter, the BoJ estimate showed.

The positive output gap exceeded 1% for the first time since January-March 2008 – months before the collapse of Lehman Brothers triggered a global financial crisis.

The outcome backs up the BoJ’s view that Japan’s economy is gathering enough momentum for inflation to accelerate toward its 2% target, and justifies it from keeping policy steady.

But some studies show there can be a lag between achieving a sustained positive output gap and an actual business response, such as a boost in investment and a pick-up in inflation.

“We’ve seen a dramatic improvement in Japan’s economy,” BoJ deputy governor Hiroshi Nakaso told Asahi newspaper in an interview.

“Corporate profits are at record-high levels, the job market is near full employment and wages are rising, albeit moderately. Monetary policy has made huge contributions,” he said.

A positive output gap occurs when actual output is more than full capacity. This happens when factories and workers operate above their most efficient capacity to meet strong demand.

When a positive output gap expands, it is a sign that inflationary pressure is building.

Japan’s economy expanded at an annualised 2.5% in the second quarter as consumer and company spending picked up, with steady growth likely to be sustained in coming quarters. — Reuters