The Japanese government announced today, Thursday, that it expects the economy to recover to its full productive capacity in the next fiscal year for the first time in seven years, driven by the strength of the labor market.
According to estimates released by the Cabinet Office, the output gap — which measures the difference between actual output and full productive capacity — is expected to reach a positive 0.4% in the fiscal year beginning in April.
An output gap becomes positive when actual output surpasses the economy's full productive capacity, signaling strong demand.
Japan's output gap turned negative in the fiscal year 2019 and plunged to -4.5% in the fiscal year 2020 during the pandemic.
These figures are among the key indicators closely monitored by the Bank of Japan to assess whether the economy is expanding robustly enough to drive demand-driven inflation growth.
