Japan’s economy fully recovers, increasing likelihood of interest rate hike – Firstpost

Japan’s economy has shown promising signs of recovery as its economic output reached full capacity for the first time in four years during the October-December quarter, according to a recent report. This development could pave the way for the central bank to consider raising interest rates.

The Bank of Japan’s estimates released on Wednesday revealed that Japan’s output gap, which measures the difference between actual and potential output, reached +0.02 percent in the final quarter of last year. This was a significant improvement from the -0.37 percent recorded in the previous quarter, marking the first positive reading in 15 quarters.

The output gap is a critical indicator for the Bank of Japan as it monitors various economic measures to determine if the economy is experiencing strong expansion capable of driving demand-led inflation. A positive output gap occurs when actual output exceeds full capacity, signaling strong demand. This is considered a prerequisite for increasing wages and achieving sustainable inflation around the BOJ’s 2 percent target.

In recent years, Japan has been grappling with deflation and low growth, leading to negative interest rates for eight years. However, this trend has now shifted as markets eagerly await clues on when the central bank may raise interest rates again. Expectations that the BOJ will proceed cautiously with further rate hikes have led to weakening yen values approaching 152 to the dollar. This level is seen as increasing Japanese authorities’ likelihood of intervening by buying yen to stabilize currency values.

Overall, Japan’s latest economic data presents an opportunity for growth and recovery after several years of struggling with stagnation and deflationary pressures. The Bank of Japan will closely monitor this trend and continue its efforts to keep inflation within its target range while ensuring sustainable economic growth in Japan.

By Samantha Johnson

As a content writer at newsnmio.com, I craft engaging and informative articles that aim to captivate readers and provide them with valuable insights. With a background in journalism and a passion for storytelling, I thoroughly enjoy delving into diverse topics, conducting research, and producing compelling content that resonates with our audience. From breaking news pieces to in-depth features, I strive to deliver content that is both accurate and engaging, constantly seeking to bring fresh perspectives to our readers. Collaborating with a talented team of editors and journalists, I am committed to maintaining the high standards of journalism upheld by our publication.

Leave a Reply