Governor of the Bank of Japan Haruhiko Kuroda TOSHIFUMI KITAMURA/AFP/Getty Images

The Bank of Japan’s Moment of Truth

After years of deflation, Japan's labor market is the tightest it has been in decades, and the Bank of Japan is still providing significant stimulus to the economy. But with inflation still well below target, central bankers are finding themselves between a rock and a hard place.

TOKYO – The Japanese economy has enjoyed seven consecutive quarters of positive growth, with the average annual rate reaching 1.9%. With aggregate demand exceeding potential output by 1%, the country’s “GDP gap” is now positive. Unemployment is down to 2.7%, the lowest level since 1993, and the job-opening-to-application ratio is 1.56, its highest level since 1974, resulting in acute labor shortages in several sectors, including construction, retail, and package delivery. And in January this year, the Nikkei Stock Average rose above ¥24,000 ($216), its highest level since 1991.