Japan’s economic output surpassed its full capacity, per a Bank of Japan (BOJ) estimate. Moreover, the output gap for the April-June quarter is highest since the October-December quarter of 2007. Moreover, in the second quarter of 2018, Japan’s economy expanded at its fastest pace in over two years. The world’s third-largest economy registered expansion after a contraction in the prior quarter, following a rise in capital expenditure and a decline in imports.

Rising business investment has pushed up the country’s capex. Currently, there is a need to look beyond the success of the domestic market and diversify abroad, particularly Japan. A rising economic output gap, expanding economy and soaring capital spending, calls for investing in Japan mutual funds.

Economic Output Beats Full Capacity

According to data by the Research and Statistics Department, BOJ, output gap, an indicator of the level of economic activity, came in at 1.86 points in the second quarter of 2018. This is the highest output gap after 2.09 in the fourth quarter of 2007. Moreover, the output gap remained in the positive territory for the seventh straight quarter.

Additionally, a slew of economic data released over the last few days were also encouraging. Per Japan’s Cabinet Office, consumer confidence in September increased to 43.4 points from 43.3 points in August. The Nikkei Manufacturing PMI remained unchanged at 52.5 in September, registering expansion since 2016. Any level above 50 is considered expansion.

Retail sales jumped 2.7% year over year (y-o-y) in August, higher than July’s 1.5% y-o-y increase. Retail sales posted its best y-o-y rise since last December. Moreover, housing starts increased 1.6% y-o-y in August, after declining 0.7% in the preceding month. Construction orders also rose 0.5% y-o-y in August, after plunging 9.3% in July.

Best Q2 GDP Growth in 2 Years

According to the country’s Cabinet Office, Japan’s real GDP increased 3% in the second quarter, higher than the preliminary reading of a rise of 1.9%. Moreover, the third-largest economy expanded in the second quarter after contracting in the first quarter of 2018. Tetsufumi Yamakawa, an economist at Barclays Securities Japan said that this trend will continue “through mid-fiscal 2019, with the economy then reaching a turning point.”