Two mechanisms are at work behind this rise in inflation. First, slack in the economy has declined and the output gap has improved. The output gap has narrowed and has recently reached close to 0 percent, that is, the long-term average (Chart 12).
Masaaki Shirakawa: Coping with financial crisis – Japan’s experiences and current global financial crisis Address by Mr Masaaki Shirakawa, Governor of the Bank of Japan, at the Fourth Deposit Insurance Corporation of Japan Round Table, Tokyo, 25 February 2009.