BoJ puts Japan's output gap at +0.55% in the second quarter and potential growth at 0.81%
Victoria Shinder1 min readThe Bank of Japan's Research and Statistics Department published its quarterly estimates of the output gap, potential growth and labour market indicators, released as scheduled on the third business day of October. The figures below are from the data file on the bank's site.
Output gap. The BoJ estimates the gap at +0.55% in the second quarter of 2026, up from +0.36% in the first. A positive gap means demand above the economy's supply capacity. The capital input gap contributed +0.33 points and the labour input gap +0.22 points; in the first quarter the split was +0.16 and +0.20, so the widening came mainly from capital. For comparison, the gap stood at +0.62% in the fourth quarter of 2025.
Potential growth. For the first half of fiscal 2026 (represented by the second quarter), potential growth is estimated at 0.81%. Total factor productivity contributes 0.71 points, capital stock 0.17, the number of employed 0.24, while hours worked subtract 0.32. The estimate has stayed around 0.8% since 2023.
Labour market. The unemployment rate in the latest figure, for July, is 2.39%, down from 2.50% in the second quarter. The Tankan employment conditions DI for all industries is -38 for the third quarter, meaning firms reporting labour shortages far outnumber those reporting surplus. The bank's estimate of the Beveridge ratio, vacancies relative to unemployment, rises to 1.63 from 1.54.
How to read it. The bank's own caveat is that the output gap and potential growth "need to be viewed with some latitude" because estimates vary with method and are subject to error. It added labour market indicators to the quarterly release because labour supply constraints increasingly drive activity and prices in labour-intensive sectors. Read together, the estimates describe an economy running slightly above capacity with a tight labour market.