- Naoki Iizuka, an economist at Citigroup Inc.
First quarter's growth will be unveiled only on May, more than a month to go; however, economists already start making projections, adding more pressure on the central bank. Central bank's projections will most likely show that the nation's output gap stood around zero during first three months of 2014. The output gap has been surprising markets to the downside since 2008. Nevertheless, central bank's estimate is projected to be slightly more positive than the government's, and will support Haruhiko Kuroda's arguments that diminishing slack in the world's third largest economy heightens the possibility central bank's efforts will push the inflation rate to the 2% inflation target next year. While BoJ's estimate will likely to show a potential growth around 0.5%, some analysts believe the output gap will close around zero. The Cabinet Office, Shinzo Abe's economic think tank, applies a different approach in calculating the gap, putting the potential growth around 0.7%, while the gap is likely to stand around 1.6%.
A consumption tax increase that was made on April 1 is likely to add a short-term pressure on the domestic consumption. Nevertheless, a stimulus package already promised by Shinzo Abe, together with continuing benefits from last year's measures may help the economy to post a 1.4% this year, just 0.1% weaker than a year earlier.
© Dukascopy Bank SA