Japan's Q2 Output Gap Rose to the Highest Level Since 2007
Japanese inflation rate remains far below the Bank of Japan’s 2% target. Japan's annual core consumer inflation hit 0.9% in August, ticking up slightly from July. The central bank of Japan has been trying to reach its inflation goal since 2013.
Japan's economic output exceeded its full capacity by the most in more than a decade in the second quarter, a hopeful sign for inflation growth, as growing positive output gap should lead to a build-up of inflationary pressure. Japan's output gap, which measures the difference between an economy's actual and potential output, stood at +1.86% in April-June (the biggest positive gap since the quarter to December 2007). The result followed a +1.63% gap in the second quarter.
A positive output gap occurs when actual output exceeds the economy's full capacity, as factories and workers operate above their most efficient level to meet strong demand.