Japan's economy sees output exceed capacity the most in 9yrs

Japan's economy saw output exceed full capacity by the most in nine years in the April-June quarter, a Bank of Japan estimate showed, a positive sign for the central bank as it seeks to accelerate inflation to its elusive 2 percent target.

The output gap, which measures the difference between an economy's actual and potential output, stood at plus 1.22 percent in April-June, staying in positive territory for the third straight quarter, the BOJ estimate showed on Wednesday.

The positive output gap exceeded 1 percent for the first time since January-March 2008 - months before the collapse of Lehman Brothers triggered a global financial crisis. The outcome backs up the BOJ's view that Japan's economy is gathering enough momentum for inflation to accelerate toward its 2 percent target, and justifies it from keeping policy steady.

But some studies show there can be a lag between achieving a sustained positive output gap and an actual business response, such as a boost in investment and a pick-up in inflation. “We've seen a dramatic improvement in Japan's economy,” BOJ Deputy Governor Hiroshi Nakaso told Asahi newspaper in an interview.

“Corporate profits are at record-high levels, the job market is near full employment and wages are rising, albeit moderately. Monetary policy has made huge contributions,” he said.