Report
TOE Alert: Is BOJ right that Japan's potential growth is as low as 0.5%? Part 1
posted by Richard Katz on November 18, 2015
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Headline
We can understand why the BOJ would want to put out a low figure. Inflation is a function of the gap between actual GDP and potential GDP, among other factors.
Abstract
Key points:
· BOJ says Japan’s “potential growth” is just 0.5% a year
· If that were true, it would make it easier to hit 2% inflation target
· Our gut feeling is that 0.5% is too pessimistic
· Data from the past four years appear to show a slowdown in productivity growth that is harmonious with BOJ’s 0.5% estimate; however, four years is too short to draw a conclusion
· We need to look at the factors that might cause such a slowdown
· Today, we look at capital investment and find it is not the culprit