On Monday it was reported that the Japanese output gap stood at a -6.4%, worse than the preliminary reading of -6.1%. This output gap is designed to measure how much the domestic product deviates from the potential gross domestic product. A negative number suggests that demand is lagging behind supplies, leading to deflationary pressure. Considering the demography of Japan, and much less consumption by an aging population, this should not be a surprise.
Deflationary pressure is a real threat in Japan, and the Japanese Prime Minister and the Minister of Finance have been leaning on the Bank of Japan to do something. Today the BoJ kept the three month rate at 0.1 percent, and increased the short term lending to banks by 20 trillion yen or $220 billion.
Read the rest of the story: Bank of Japan Policies Makes Yen Attractive to the Carry Trade