By Leika Kihara and Yuko Yoshikawa
TOKYO (Reuters) - The Bank of Japan does not need to ease monetary policy further for the time being since a delay in hitting its inflation target is mostly due to slumping oil prices, the policy chief of Japan's ruling Liberal Democratic Party said on Friday.
Tomomi Inada, among Prime Minister Shinzo Abe's closest aides, also warned that further monetary easing may accelerate a fall in the yen and hurt small firms in regional areas of Japan.
"A weak yen is beneficial for big companies with global operations. But we must also be mindful of the negative aspects of a weak yen," Inada told Reuters.
"When yen falls accelerate, there are damages to small and regional companies," she said, signalling that further sharp yen falls were undesirable.
The BOJ has kept monetary policy steady since expanding its stimulus in October last year to prevent slumping oil prices, and a subsequent slowdown in inflation, from delaying a sustained end to 15 years of grinding deflation.
But inflation has ground to a halt and is set to turn slightly negative in coming months due to oil price falls and feeble consumer spending.
The central bank pushed back the timeframe for achieving its inflation target last month but refrained from easing further, convinced that rising wages and improvements in the economy will accelerate inflation early next year.
FISCAL TARGET INTACT
Inada, who represents the party's stance on key policies, said the delay in achieving the inflation target was "within a range we see as acceptable."
Asked whether further monetary easing was necessary at this stage, she said: "I don't think so."
Hand-picked by Abe for one of the most crucial party posts, the 56-year-old lawyer-turned politician is seen as a candidate to become Japan's first female prime minister.
As policy chief, Inada is tasked with building a party consensus on policies ranging from diplomacy to economics. She also heads a party panel advising the government on a fiscal reform plan due in mid-June.
Inada said that while Japan was making progress in exiting deflation, the economy can only achieve true revival through deregulation and steady implementation of growth policies.
Shrugging off calls from within her party to water down Japan's fiscal discipline target, Inada said the country must stick to its pledge of turning its primary budget deficit into a surplus by fiscal 2020.
"There are calls to use the debt-to-GDP ratio as a target instead of the primary balance goal. But to cut the debt-to-GDP ratio, we need to achieve a primary budget surplus," she said.