Catenaa, Thursday, December 26, 2024-Japan’s government announced Thursday it expects economic output to exceed full capacity in the next fiscal year, marking the first positive output gap in seven years.
The recovery is attributed to strong demand and a tight labor market.
The Cabinet Office estimates the output gap will stand at +0.4% for the fiscal year beginning in April.
A positive output gap, where actual economic output surpasses potential capacity, signals robust demand.
This indicator is closely monitored by the Bank of Japan to assess inflationary pressures.
Japan’s labor force, at around 69 million, faces supply constraints due to persistent labor shortages. The country’s output gap last turned positive in fiscal 2018 but plunged into negative territory during the pandemic, reaching -4.5% in fiscal 2020.
Consumer price index (CPI) growth, including fresh food prices, is expected to decelerate to 2% in the next fiscal year, down from this year’s 2.5%, according to the Cabinet Office.
The projection adds to signs of economic recovery, although labor market constraints and inflationary pressures remain critical concerns for policymakers.
The output gap’s return to positive territory may influence the Bank of Japan’s monetary policy, which hinges on sustainable demand-driven inflation to achieve its 2% target.
