MNI POLICY: BOJ: Japan Q1 Output Gap Narrows to +0.29 PPs

     TOKYO (MNI) - Japan's positive output gap has been estimated at 0.29

percentage points in Q1, sharply narrowing from 1.07 pp in Q4, the Bank of Japan

said Friday.

     The output gap is expected to narrow further in the coming quarters as the

labor market shortage has eased.

--The positive output gap below 1.00 pp was the first since Q3 2017 when it

was at +0.85 pp.

     --The result was the 14th straight quarter with a positive output gap,

which, in theory, should increase 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,

was wider than the Cabinet Office's latest estimate at -2.4 pp, a figure based

on revised Q1 GDP data of a 0.6% fall q/q, or an annualized rate of -2.2%.

     --The BOJ also said that Japan's potential growth rate for the

October-March 2020  period was estimated at 0.13%, down from 0.21% for the six

months

through September 2019. This is slightly below the bank's latest estimate of

0.5-1.0% provided in the January Outlook Report.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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