Output Gap

BoJ estimated Japan's output gap for the July-September quarter to be -0.31% of potential GDP, marginally improving from -0.75% in the April-June quarter.

Published quarterly by the Bank of Japan and Cabinet Office. Updated till the quarter of July-September 2016 (Bank of Japan estimates published on 6th January, 2017 and Cabinet Office estimates published on 25th January, 2017)

Note: Quarterly estimates of Potential Growth Rate, TFP, Capital and Labor stock contribution for the year 2011 are not available due to the Great East Japan Earthquake.

Brief overview of "Output Gap"

Output Gap measures the difference between actual GDP of the economy and the highest sustainable GDP. The latter is called potential GDP, and the growth in the potential GDP is called potential GDP growth. The output gap is usually measured as a percentage of the potential GDP. 

The output gap is an important indicator for policy makers as it helps them determine an appropriate policy for the economy. A positive output gap indicates a possible inflationary pressure within the economy and vice versa. It is also important for policy makers to understand the source of growth, either labor, capital or productivity. The Bank of Japan publishes a breakdown of growth by estimating contributions from Total Factor Productivity (TFP), labor and capital. 

In the recent history, Japan has experienced the severest negative output gap, exceeding more than 7% to GDP in early 2009 after the Lehman shock. Since then, the output gap has gradually closed, reaching zero in early 2014. However, since then, the output gap has remained steady. In order for the Japanese economy to experience a reflation, the output gap probably needs to further rise towards positive territory. Japan's potential growth rate have been on a gradual decline since the recent peak of 4 to 5% growth in mid 1980s. Most recently, the potential growth rate is estimated to be close to zero. 

Output Gap and Potential GDP based on SNA93

Suggested Pages

Gross Domestic Product

The growth estimate for the Japanese economy in the October/December quarter was 0.2% quarter on quarter, slightly slower than the 0.3% growth in the July/September quarter.

View Page

Corporate Profits

In the July-September quarter of 2016, corporate profits increased by 11% year on year. The growth in total corporate profits is mostly due to increase of 24.5% in non-manufacturing profits.

View Page

Industrial Production

As per the revised IP data for December 2016, the industrial production index rose by 0.7% month on month to 100.6. METI, the agency responsible for publishing the statistics, forecast the production to rise further in January by 0.3% month on month.

View Page

Wage and Hours Worked

In December 2016, total wages rose by mere 0.1% year on year. Wages in Japan has been stubbornly stagnant, despite the prevailing full employment status in the economy.

View Page