By Leika Kihara and Taiga Uranaka
TOKYO (Reuters) - The head of Japan's bank lobby on Thursday urged the Bank of Japan to review its 2 percent inflation target and ultra-loose monetary policy, saying that sticking with its elusive inflation goal would do more harm than good.
Six years of heavy money printing by the central bank has made clear that Japan's economy can recover even amid low inflation, said Koji Fujiwara, chairman of the Japanese Bankers Association.
"The BOJ should not persist in achieving its price target both in terms of the timeframe and pace of price growth," as subdued inflation is forcing it to maintain a radical stimulus that is straining bank profits, he said.
One idea could be to replace the BOJ's 2 percent inflation target with a target range on desirable price growth, which would enhance flexibility on monetary policy, Fujiwara said.
"While it may be difficult to do so immediately, the BOJ should cautiously but steadily take measures" to stock up its policy ammunition in case it needs to ramp up stimulus in the future, Fujiwara said.
"The BOJ may be approaching a stage where it needs to review its price target" and its ultra-easy policy, he said.
The comments by Fujiwara, who added that they reflect his "personal view," were the strongest to date from Japan's banking lobby calling for a review of the BOJ's policy framework.
Fujiwara is also president of Mizuho Bank, a core unit of Japan's second-largest lender Mizuho Financial Group.
The BOJ is caught in a dilemma. Years of heavy stimulus have failed to fire up inflation, forcing the bank to maintain its massive bond buying programme despite financial institutions having to endure weak profits from near-zero rates.
Mitsubishi UFJ Financial Group Inc (MUFG) 8306.T, Japan's largest lender by assets, earlier this month reported a 6.4 percent decline in net profit for the three months through December.
BOJ Governor Haruhiko Kuroda has said the central bank will maintain its ultra-loose policy to help improvements in the economy steadily accelerate inflation. But he has also said the BOJ would carefully look at the benefits and costs of stimulus.
"The demerits of ultra-loose policy are cumulative and it's hard to deal with them once they materialise. That's why it's necessary to conduct monetary policy in a forward-looking manner," he said.
Japan's annual core consumer inflation hit a seven-month low of 0.7 percent in December and may ease further in coming months due lower oil prices and soft household spending.
Adding to the BOJ's headaches, a slowdown in the world economy has jolted markets and led the International Monetary Fund to cut its global economic growth forecasts.
(Reporting by Leika Kihara and Taiga Uranaka; Editing by Kim Coghill)