Japan’s economic output has fully recovered to its capacity for the first time in about four years in the October-December quarter, which is viewed as a positive sign by experts. According to an estimate by the Bank of Japan (BOJ), Japan’s output gap, which measures the difference between an economy’s actual and potential output, stood at +0.02% in the final quarter of last year. This was a significant improvement from the -0.37% reading in the third quarter and marked the first positive reading in 15 quarters.
The BOJ closely monitors the output gap as it helps to determine whether the economy is growing strongly enough to trigger a demand-driven rise in inflation. A positive output gap occurs when actual output exceeds the economy’s full capacity, indicating strong demand. Analysts view this as a key factor in driving wage increases and pushing inflation towards the BOJ’s 2% target.
Last month, the BOJ ended eight years of negative interest rates and other unconventional policies, marking a shift away from focusing on defeating deflation to promoting growth through massive monetary stimulus. The financial markets are closely watching for any indications of when the central bank may consider raising interest rates again. The expectation of a more cautious approach to rate hikes has led to a weaker yen, approaching 152 to the dollar, raising concerns about potential intervention by Japanese authorities.
The stronger yen has resulted in more capital inflows into Malaysia, according to experts. This trend highlights the interconnectedness of global economies and the impact that monetary policies in one country can have on others. The positive economic outlook in Japan, coupled with the potential for interest rate hikes, is likely to have far-reaching implications for the region and beyond.
In recent months, there have been signs that Japan’s central bank may be considering raising interest rates again soon. While there are still many factors that need to be taken into account before any decision is made, experts believe that if Japan continues on this path towards recovery and growth, it could ultimately lead to higher wages and inflation levels.
However, there are also concerns about how such changes might affect other countries in Asia and beyond. Some worry that rising interest rates could lead to currency fluctuations and potentially destabilize financial markets across Asia.
Despite these risks, many analysts believe that if Japan can continue its economic momentum without causing too much instability elsewhere in Asia or globally, it could pave
