MNI BRIEF: Japan Q1 Output Gap Narrows To -0.07% - BOJ

The Bank of Japan estimates the country's Q2 output gap at -0.07%, narrowing from -0.41% in Q1 – the 13th straight quarterly negative gap – indicating upward pressure on prices continues to increase with a time lag, BOJ data released Wednesday showed.

The Bank expects the gap to turn positive about the middle of fiscal 2023 and to expand moderately toward the end of the projection period to March 2026.

The BOJ's estimate of the output gap, based on capital and labour stocks, is smaller than the Cabinet Office's last estimate of +0.1% in Q2 (vs. -0.9% in Q1), which is based on second preliminary Q2 GDP data showing a 1.2% q/q rise, or an annualised rate of 4.8%. The Cabinet Office's positive output gap is the first such read in 15 quarters.

The BOJ also estimated Japan's potential growth rate for the April-June period at 0.62%, up from 0.49% for the October 2022-March 2023 period.

The Cabinet Office estimates Japan's potential growth rate to be about 0.5% in the April-June period, unchanged from Q1.