Share This On Social

Japan’s economic output has exceeded its full capacity in Q2 2018, which will help the country to achieve the target inflation target of about 2%. The positive difference between potential and actual gross domestic product shows that enterprises and workers are operating above their most effective level to achieve their production goals.

In theory, this difference must lead to the build-up of inflationary strain, even though the central bank of Japan has admitted that structural factors can keep price growth short for longer than expected.

Some analysts have warned that economic growth will slow down and may even shrink between July and September following a series of natural disasters that have negatively affected production and consumption.

The delay in economic growth may postpone target inflation.

The positive difference between potential and real GDP is good news for the Japanese Central Bank. Rising oil prices may also affect inflation. According to analysts the consumer core inflation may reach 1% over the next few months.

The gap between Japan’s potential and real GDP growth was 1.86% between April and June, remaining on green territory in the last seven quarters, according to the Japanese Central Bank.

The result, the biggest positive difference between potential and real GDP since 2007, followed the 1.63% positive figure in Q1 2018.

These data will be among the key factors that the Japanese Central Bank will follow when it announces forecasts for growth and inflation for the quarter in the next report at the end of October.

Instead of attempting to change public perceptions about future price movements through shocking incentives, the bank focuses on maintaining its stimulus program for as long as necessary so that the positive difference between potential and real GDP will raise inflation.

In mid-September, the Japanese central bank said it would keep interest rates extremely low, confirming that it would buy government bonds at an annual rate of 80 trillion JPY (712 billion USD).

The bank has retained its view that the economy is growing at a moderate pace, but warned that the US-led trade war could delay global investment and economic growth.