BOJ's Iwata: Japan bubble has lessons for c.banks

TOKYO, Sept 3 (Reuters) - Japan's experience with asset bubbles that burst more than a decade ago can provide some lessons for central banks dealing with housing price bubbles, Bank of Japan Deputy Governor Kazumasa Iwata said in a speech released by the BOJ on Monday.

Although central banks should give priority to price stability as their policy objective, they should also emphasise the need to deal with euphoria in financial markets, Iwata told a U.S. audience in Jackson Hole, Wyoming, on Saturday.

The text of the speech did not touch on the current turmoil in financial markets triggered by concerns about the U.S. subprime mortgage market. Iwata said the current low level of real long-term interest rates among major advanced economies, which have tended recently to converge at around 2.0 percent, could lead to asset bubbles.

"The low real long-term rate implies that any country which has a higher expected growth rate, significantly above 2.0 percent, is liable to register the acceleration of asset prices." he said.

Iwata also said the expectation that interest rates would stay low for a long time was one reason behind the wild rise of stock and real estate prices in Japan in the late 1980s.

"Today, we observe that (Japanese) land prices have bottomed out with the significant rise in the price of commercial land, while the core CPI hovers around zero," Iwata said.

"We must recall that behind the aggressive risk-taking in the latter half of the 1980s there was the market perception of long-sustained low interest rates for the future under price stability," he said.