Japanese Demand Supply Gap Improves Signalling Inflation Rise

July 17, 2014 Share Print 0

The Bank of Japan said Wednesday that demand in the country’s economy exceeded potential supply in the three months through March for the first time in nearly six years, in a development that signals prices are rising.

The demand-supply gap, estimated in the central bank’s monthly report, stood at 0.6 percent, improving from minus 0.2 percent in the previous quarter and also suggesting companies will increase capital spending or employ more workers to meet robust demand.

The figure was in positive territory for the first time since the second quarter of 2008, when the gap stood at 0.7 percent.

The result added to the view that the Japanese economy is exiting nearly two decades of deflation, which normally stifles demand with prices falling.

The BOJ has embarked on aggressive monetary easing with the aim of achieving a 2 percent inflation goal in or around fiscal 2015 starting next April.

Excluding the direct effects of the April sales tax hike, consumer prices in Japan grew 1.4 percent in May, expanding for the 12th consecutive month. The result was in line with the BOJ’s projection.

via Mainichi

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Alfonso Esparza

Senior Currency Analyst at Market Pulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.