• Thu. Apr 25th, 2024

Japan’s Economy Reaches Full Capacity for First Time in Four Years: What It Means for Interest Rates and the Yen

BySamantha Nguyen

Apr 3, 2024
Japan’s economy fully recovers, increasing likelihood of interest rate hike – Firstpost

Japan’s economy reached full capacity for the first time in four years during the October-December quarter, marking a significant improvement from the previous quarter. The Bank of Japan’s estimate released on Wednesday showed 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 positive reading in 15 quarters and could lead to the central bank considering raising interest rates.

The output gap is a crucial 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.

The Bank of Japan recently ended eight years of negative interest rates in a shift away from its focus on tackling deflation and stimulating growth with extensive monetary stimulus. Markets are keenly watching for 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 the yen weakening, approaching 152 to the dollar. This level is seen as increasing the likelihood of Japanese authorities intervening by buying yen to stabilize the currency.

By Samantha Nguyen

As a content writer at newsqwe.com, I am passionate about crafting engaging and informative articles that captivate our audience. With a background in journalism and a keen eye for detail, I strive to deliver content that is not only well-researched but also adds value to our readers' lives. From breaking news stories to in-depth features, I take pride in my ability to tell compelling stories that resonate with our diverse audience. When I'm not typing away at my keyboard, you can find me exploring new cafes, practicing yoga, or getting lost in a good book. I am thrilled to be a part of the newsqwe.com team and look forward to sharing my love for writing with all of our readers.

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