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

Found in Japan, categorized in Macro

Tags: Richard Katz TOE BOJ Japan economy

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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.


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

About Richard Katz

Richard Katz

Richard Katz is Editor of The Oriental Economist Report, a monthly newsletter on Japan, as well as the semi-weekly TOE Alert e-mail service on Japan, and is also a special correspondent at Weekly Toyo Keizai, a leading Japanese business weekly.

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