MNI BRIEF: BOJ: Output Gap -0.27% in Q4, 19th Straight Drop

Japan's output gap was estimated at -0.27% in Q4, narrowing from -0.55% in Q3 but posting its 19th straight negative print, indicating upward pressure on prices continues with a time lag, data released by the BOJ showed on Thursday.

The BOJ's estimate of the output gap, based on capital and labour stocks, is smaller to the Cabinet Office's last estimate of +0.2% in Q4 (vs. -0.2% in Q3), which is based on revised second preliminary Q4 GDP data showing a 0.6% rise q/q, or an annualised rate of 2.2%.

The BOJ’s Outlook Report in January said that the output gap, which captures the utilisation of labour and capital, has followed an improving trend, albeit with fluctuations. It also said that the gap is likely to widen moderately within positive territory toward the end of the projection period.

The BOJ also noted that Japan's potential growth rate for Q4 was estimated at 0.66%, up from 0.62% for the April-September 2024 period.

The Cabinet Office estimates Japan's potential growth rate to be about +0.6% in the October-December period, up from +0.5% in Q3 of 2024.