MNI DATA IMPACT: Japan Output Gap Narrows To -2.01 PPS In Q4

Japan's output gap is seen at -2.01 percentage points in the three months to December improving from the -3.37% pp and -4.89% point in Q3 and Q2, respectively, the Bank of Japan said Monday.

The negative reading in Q2 2020 was the first since Q3 2016 when it was -0.24 pps, and suggests a possible downward pressure on consumer prices and inflation expectations, albeit 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 -3.5 pps (vs. -6.0 pp in Q3), which is only based on second preliminary Q4 GDP data showing a 2.8% rise q/q, or an annualized rate of +11.7%.

The central bank also said that Japan's potential growth rate for the October-December 2020 was estimated at 0.04%, down from 0.15% for the April-September period.

The Cabinet Office estimated Japan's potential growth rate to be about 0.5% in Q4, unchanged from the third and second quarters.