Economy running at near full capacity, Bank of Japan says

The Japanese economy has rebounded and is nearing full capacity in the second quarter, according to central bank figures released on Wednesday.

According to Bank of Japan data, the output gap, which gauges the difference between an economy’s actual and potential production, was -0.07% in April-June.

While this was the 13th consecutive quarter of negative growth, the difference decreased from -0.41% in January to March.

The output gap is one of the indicators that the BOJ regularly monitors to evaluate whether the economy is expanding rapidly enough to trigger a demand-driven rise in inflation.

A positive output gap arises when actual output exceeds the economy’s full potential, and it is regarded as a sign of strong demand. Analysts consider it one of the criteria for further wage increases and sustained inflation beyond the Bank of Japan’s 2% objective.

The BOJ anticipates that the production gap will turn positive in October of this year and will continue to rise gradually.