BOJ Minutes Show Output Gap is Major Obstacle to 2% Inflation

Some members of the Bank of Japan’s (BOJ) policy board believe that an output gap was one reason the country was taking longer to meet inflation targets, minutes of the central bank’s latest meeting showed Wednesday.

Concerns about the output gap were not shared by the majority, but they highlighted a lingering worry that the delay in Japan meeting the BOJ’s 2 percent target meant that its quantitative easing had been ineffective.

An output gap is the difference between what an economy is producing and what it could produce if operating at its most efficient. A negative output gap – when a economy is producing less than it could at optimum – indicates weak demand, which in turn can mean low inflation pressure.
“A few members added that the projected delay in the timing of reaching 2 percent had also been partly attributable to a somewhat slow improvement in the output gap,” the minutes showed.
At the meeting on October 30, the BOJ pushed back the timing of meeting its 2 percent target by six months to the second half of fiscal 2016 due to weak oil prices. Two board members dissented from the bank’s baseline scenario that inflation would reach 2 percent by 2017, exposing a rift between policy board members.

via CNBC

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