Yen Is Tamed So BOJ Can Drop Inflation Goal, Business Lobby Says

(Bloomberg) -- The Bank of Japan shouldn’t lock itself into monetary stimulus to reach its inflation goal now that it has well and truly corrected excessive gains in the yen, according to the head of one of Japan’s largest business groups.

The central bank should instead start discussing an exit strategy as soon as uncertainties over China’s slowdown and the U.K.’s departure from the European Union have subsided, said Akio Mimura, chairman for the Japan Chamber of Commerce and Industry.

“I want them to take a flexible approach by thoroughly considering the side effects of policy without obsessing over the 2 percent price target,” Mimura, whose organization represents 1.25 million small and medium-sized companies, said in an interview last week.

Yen Is Tamed So BOJ Can Drop Inflation Goal, Business Lobby Says

Mimura’s remarks show that even a strong proponent of the BOJ’s massive stimulus program now sees a need to start winding it down as the side effects of nearly six years of easing continue to build up.

Prolonged low interest rates have squeezed the profitability of lending for regional banks, loosened the fiscal discipline of the government and encouraged a lack of urgency in corporate investment decisions, Mimura said, flagging side effects that concerned him.

The BOJ moved to ease some of the side effects of its stimulus with policy tweaks last July and Governor Haruhiko Kuroda has said he will balance the effectiveness of policy against its side effects. But Kuroda has repeatedly said that talking about the specifics of an exit strategy is premature given that inflation is still less than halfway to the bank’s target.

The BOJ board has a policy meeting from March 14-15 and is likely to discuss a possible downgrade of its export and production assessments, according to people familiar with the matter.

Mission Accomplished

Yen Is Tamed So BOJ Can Drop Inflation Goal, Business Lobby Says

Mimura said BOJ policy had tackled excessive currency gains that had pushed the yen to around 80 against the dollar before Kuroda took the helm in 2013. The yen was at 110.99 against the dollar late on Friday, compared with a high of around 76 in early 2012.

“Everybody knew from the very start that exiting would be very difficult,” said Mimura, who is also the honorary chairman of the Nippon Steel & Sumitomo Metal Corp. But companies were desperate at the time to see the currency hurdle for their businesses lowered to a normal level, he said.

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