Japan's Deflationary Boom
This growth is much higher than in most other advanced economies. Yet this strong growth happened "despite" the fact that Japan "suffers" from deflation. The domestic demand deflator fell by 1.5% in the latest year, and by 0.5% (2% at an annaualized rate) compared to the previous quarter. The private consumption deflator (a gauge of consumer price inflation) fell even more.
This shows again that it is in fact possible to have price deflation and high economic growth at the same time. Some Keynesians would perhaps object that Japan had a severe slump the previous year, so that real GDP is in fact still lower than in the third quarter of 2008 (and 2007). That is true (and this suggests that the boom is a cyclical rebound, meaning that current growth rates are likely not sustainable), yet Japan's working age population shrinks by nearly 1% per year, and unemployment is therefore very low by Western standards, only 5.1%. There is therefore not much "unused capacity"