MNI DATA BRIEF: BOJ: Output Gap Narrows To -1.37 PP In Q1

Japan's output gap narrowed to -1.37 percentage points in Q1, improving from -1.94 pp, but reached the fourth straight negative reading, the Bank of Japan estimated on Monday.

The improvement indicated that downward pressure on consumer prices and inflation expectations will ease with a lag of a few quarters.

The BOJ's estimate of the output gap, based on capital and labour stocks, is smaller than the Cabinet Office's last estimate of -4.7 pp in Q1 (vs. -3.5 pp in Q4), which is only based on first preliminary Q1 GDP data showing a 1.3% fall q/q, or an annualized rate of -5.1%.

The central bank also said that Japan's potential growth rate for the October 2020 to March 2021 period was estimated at 0.10%, down from 0.19% for the April-September 2020 period. The Cabinet Office estimates Japan's potential growth rate around 0.5% in the October-December period, unchanged from the third and second quarters of 2020.