[TOKYO] Japan's output gap narrowed in January-March, according to calculations based on revised gross domestic product data, in an encouraging sign for the Bank of Japan's inflation target.
The output gap in the first quarter was minus 1.6 per cent, the Cabinet Office said on Monday. That compares with a minus 2.4 per cent gap in the fourth quarter of last year.
A negative output gap - or the difference between actual and potential gross domestic product - suggests that output is less than what the country can produce at full capacity.
When a negative output gap narrows, it is a sign that deflationary pressure is receding.
Japan's first-quarter GDP growth was revised up to a 3.9 per cent annualised rate from the preliminary reading of 2.4 per cent due to gains in capital expenditure, data showed last week.
An improving output gap is important for the BOJ because the central bank is trying to meet its 2 per cent inflation target around the first half of fiscal 2016.
The latest data show core consumer prices rose only 0.3 per cent on year in April, and some economists doubt the BOJ can meet its target within its proposed time frame.