Demand in Japan’s economy outstripped supply for the first time in nearly four years, a signal that the nation is getting closer to achieving the lasting inflation sought by its central bank.
(Bloomberg) — Demand in Japan’s economy outstripped supply for the first time in nearly four years, a signal that the nation is getting closer to achieving the lasting inflation sought by its central bank.
The output gap, a broad measure of supply and demand in the economy, rose 0.4% in the three months through June, according to the Cabinet Office on Friday. The reading turned positive for the first time since the third quarter of 2019, when demand surged ahead of a sales tax increase.
The latest figure comes in the same week the Cabinet Office issued a report detailing progress in eradicating deflation in Japan’s economy after around a quarter century.
The Bank of Japan has repeatedly cited a positive output gap among the factors needed to feel confident that inflation is sustainable. While prices have grown at a faster pace than the BOJ’s 2% target for more than a year, the bank has argued that a trend largely driven by higher costs rather than demand won’t last for long.
BOJ Governor Kazuo Ueda has repeatedly said he must see more signs of sustainable price hikes accompanied by wage growth before the bank can shift away from its massive stimulus. While other countries have been striving to cool the strongest inflation in years, Japan has long been trying to stoke prices after years of growth-sapping deflation.
The central bank releases its own calculation of the output gap using data including production capacity utilization, while the Cabinet Office relies mainly on gross domestic product figures and the potential growth rate. The BOJ’s last release showed the output gap at -0.34% in the first quarter.
The country’s strongest spell of price growth in decades and the arrival of a new governor at the central bank have stoked market expectations that the BOJ will pare back its long-running stimulus. In a Bloomberg survey last month, next April was cited as the most likely month for the central bank’s next policy move.
–With assistance from Toru Fujioka.
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