TOKYO (Reuters) – Japan’s economic output fell below full capacity for the 11th straight quarter from October to December, central bank data showed on Wednesday, suggesting the conditions for ending ultra-low interest rates have yet to be created.
Japan’s output gap, which measures the difference between an economy’s actual and potential output, was -0.43% in the fourth quarter, widening from -0.08% in July-September, Bank of Japan (BOJ ) showed.
A negative output gap occurs when actual production is less than the economy’s full capacity and is seen as a sign of weak demand, which usually puts downward pressure on inflation.
The output gap data is among the factors the BOJ is examining to gauge whether economic growth and domestic demand are strong enough for Japan to sustain its 2% inflation target.
Markets are awash with speculation that the BOJ will phase out its ultra-loose monetary policy when new governor Kazuo Ueda succeeds dovish incumbent Haruhiko Kuroda this month.
Japan’s economy grew an annualized 0.1% in the October-December period, narrowly averting a recession as investment spending and consumption remained weak.
While an end to COVID-19 restrictions supports consumption, increasing signs of slowing external demand are clouding the outlook for Japan’s export-dependent economy.
(Reporting by Leika Kihara; Editing by Jacqueline Wong)
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