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Iwata Urges Patience for BOJ Easing to Penetrate Real Economy

Bank of Japan Deputy Governor Kikuo Iwata said it will take time for the bank’s unprecedented easing to extend from asset markets to Japan’s economy.

“Please don’t be disappointed yet that the impact of easing hasn’t appeared in the real economy,” Iwata said today in a speech in Kyoto, western Japan. The central bank’s easing is “still in its early stages, and I hope you will be patient enough to see its effects permeate the economy.”

Iwata’s comments signal concern that optimism among households and businesses may start to weaken, with wage growth and capital spending still stagnant even after the central bank introduced unprecedented easing in April to stimulate inflation. A planned sales-tax increase next year could also trigger a contraction in the economy, according to the median estimate of economists surveyed by Bloomberg News.

“Iwata doesn’t want to damage the optimism emerging in the economy before the economic benefits reach households and businesses,” said Kazuhiko Ogata, chief Japan economist at Credit Agricole SA. in Tokyo. “He wanted to emphasize that monetary easing will clearly support the economy and eventually raise wages, which is the key for generating inflation expectations.”

Wages in Japan fell or were unchanged in 10 of the 12 months through June. The economy grew an annualized 2.6 percent in the second quarter from the previous period, with consumer and government spending driving the expansion as capital spending dropped for a sixth quarter.

Stagnant Wages

It is less than 5 months since the bank introduced qualitative and quantitative easing, Iwata said in his first public speech after becoming a board member in March. “It will take some more time before we start seeing persistent and steady pickups in prices and wages.”

Until joining the Bank of Japan, Iwata, 70, was a professor at Gakushuin University in Tokyo. He was known as a long-time critic of Japan’s monetary policy, calling for more aggressive measures. Iwata had advocated the BOJ focus on increasing the amount of money in the economy, the policy the central bank adopted in April.

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