TOKYO- Japan’s economic output recovered to full capacity for the first time in about four years in the October-December quarter, a positive sign that may allow the central bank to raise interest rates again.
Japan’s output gap, which measures the difference between an economy’s actual and potential output, stood at +0.02 percent in the final quarter of last year, an estimate by the Bank of Japan (BOJ) showed on Wednesday.
It followed a reading of -0.37 percent in the third quarter, and was the first positive reading in 15 quarters.
The output gap is among data the BOJ watches closely in determining whether the economy is expanding strongly enough to propel a demand-driven rise in inflation.
A positive output gap occurs when actual output exceeds the economy’s full capacity, and is considered a sign of strong demand. It is seen by analysts as one of a handful of prerequisites for wages to rise more, and push inflation sustainably around the BOJ’s 2 percent target.
The BOJ ended eight years of negative interest rates and other remnants of its unorthodox policy last month, making a historic shift away from its focus on quashing deflation and reflating growth with decades of massive monetary stimulus.
Markets are on the look-out for any clues on how soon the central bank could raise interest rates again.
Expectations that the BOJ will go slow in any further rate hikes have pushed the yen down to near 152 to the dollar, a level seen by markets as heightening the chance of yen-buying intervention by Japanese authorities.
Japan’s economy avoided a technical recession, revised government data showed last month, even though the upward change in the fourth quarter was weaker than expected and highlighted concerns about the sluggish economic recovery.
Japan’s revised gross domestic product (GDP) expanded at an annualised clip of 0.4 percent in the October-December period from the previous quarter, better than the initial estimate for a 0.4 percent contraction, according to the Cabinet Office.
It was, however, below economists’ median forecast for a 1.1 percent uptick in a Reuters poll.
On a quarter-on-quarter basis, GDP grew 0.1 percent, compared with the initial reading of a drop of 0.1. percent drop and a median forecast for a 0.3 percent rise.
The upward revision came amid growing market expectations the Bank of Japan could ditch its negative interest rates as early as this month, fuelled in part by board members’ recent hawkish comments that Japan was moving towards the central bank’s 2 percent inflation target.
Capital expenditure, which increased 2.0 percent quarter-on-quarter, anchored the upward revision. It was better than better than the preliminary 0.1 percent decrease but still below a median market forecast of a 2.5 percent rise.
Private consumption, which makes up about 60 percent of Japan’s economy, fell 0.3 percent in October-December, slightly worse than the 0.2 percent drop in the initial estimate. Seafood and household appliances contributed to downward pressure in the category, a Cabinet Office official said.
External demand contributed 0.2 percentage points to real GDP, unchanged from the preliminary reading.
