MNI POLICY: BOJ: Japan Q1 Output Gap Narrows to +1.30 PPs

     TOKYO (MNI) - Japan's estimated positive output gap narrowed to 1.30

percentage points in the January-March quarter, as supply tightened and demand

firmed, down from 1.98pp in October-December, the Bank of Japan said Wednesday.

     --It was the 10th straight quarter with a positive output gap, which is

expected to 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 0.2pp, a figure based on

revised Q1 GDP data of +0.6% on quarter, or an annualized rate of +2.2%, and

following -0.1pp for the October-December period.

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

2018-March 2019 period was estimated to be 0.74%, up from 0.71% for the six

months through September 2018, which is within the bank's latest estimate of

0.5-1.0% provided in the April Outlook Report.

     --The Cabinet Office estimates Japan's potential growth rate to be about

1.1% in the January-March quarter, unchanged from the October-December.

--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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