April 21, 2024 11:30 pm
Japan’s Economy Bounces Back to Full Strength, Maintains Possibility of BOJ Rate Increase

Japan’s economy has shown a positive sign of growth as its economic output returned to full capacity in the October-December quarter for the first time in nearly four years. This development may indicate that the Bank of Japan (BOJ) could consider raising interest rates again. The BOJ’s estimates showed that the output gap, which measures the difference between an economy’s actual and potential output, was at +0.02% in the final quarter of last year. This is a significant improvement from the -0.37% reading in the previous quarter and marks the first positive reading in 15 quarters.

The output gap is an essential factor that the BOJ monitors closely to determine if the economy is expanding robustly enough to drive demand and inflation. A positive output gap occurs when actual output exceeds an economy’s full capacity, indicating strong demand. Analysts view this as a prerequisite for wage increases and sustainable inflation around the BOJ’s 2% target. Following the BOJ’s decision to end negative interest rates and shift away from its focus on deflation towards economic growth, markets are eagerly watching for any hints of when the central bank might raise interest rates again.

However, there are concerns that Japan may take a cautious approach to further rate hikes, which has caused the yen to weaken to around 152 against the dollar. This level is seen as increasing the likelihood of yen-buying intervention by Japanese authorities. A stronger yen could result in more capital inflows into countries like Malaysia, according to experts. Overall, investors and analysts are closely watching Japan’s economic output and policy decisions for their potential impact on global economies.

In conclusion, Japan’s return to full economic capacity during Q4 2019 is a positive sign for global economies, indicating that central banks may be considering raising interest rates again soon after years of focusing on deflation control.

Leave a Reply