(Bloomberg) -- Japan’s government and central bank should start targeting an exchange rate of 120-130 per dollar as the yen is currently far too weak for struggling small businesses, according to a national business group leader.

“Small and medium-sized companies are already in a very tough spot with the yen sticking around 150 to the dollar,” Ken Kobayashi, chairman of the Japan Chamber of Commerce and Industry, said in an interview Thursday. 

Kobayashi said the 120 range would be a more appropriate exchange rate level for businesses, offering them greater operational flexibility. 

“If the authorities could come up with policy that keeps the yen in that range that would be ideal,” he said.

Kobayashi’s comments come with the yen around 155.50 to the dollar after breaching the 160 mark last week for the first time in 34 years despite the Bank of Japan’s first interest rate hike since 2007 in March. 

Sharp jumps in the currency last week and movements of around ¥9.4 trillion ($60.5 billion) in the central bank’s accounts indicate that Japan likely intervened twice to prop up the yen in action that temporarily pushed the rate below 152 before the yen pared gains.

“The government seemed to intervene hastily when the yen hit 160,” Kobayashi said, suggesting that steps could have been taken at an earlier stage. Kobayashi said at a news conference on Thursday prior to the interview that Japan should not hesitate to manipulate its currency as needed. 

Among the many factors affecting the exchange rate, the primary reason for the yen’s recent depreciation is the difference between US and Japanese interest rates. The slide has come as market players have pushed back their timeframes for when they expect the Federal Reserve to begin cutting US rates.

While a BOJ rate hike would help narrow the interest rate gap, Kobayashi said it would be difficult for Japan’s central bank to make a sharp move anytime soon considering companies’ financing issues and the potential impact on the economy, although he didn’t rule out the possibility of the bank considering its next step as early as this summer.

Income tax cuts, bonus payments and a large influx of inbound travelers in the summer are among the potential factors that might encourage the central bank to move early, Kobayashi said. 

Wage trends are another key factor that could prompt the BOJ to raise interest rates a second time, he added. 

“If there is some encouraging news, such as real wages or real income turning positive, then policy may head in the right direction,” Kobayashi said. 

He emphasized the importance of boosting wages among small and medium-sized enterprises. Small businesses are struggling to pass labor costs onto customers via price increases, partially limiting their scope for pay growth, Kobayashi said. 

Prime Minister Fumio Kishida’s government has implemented a number of policies to incentivize companies to pass on higher costs along the supply chain, including new antitrust guidelines on price negotiations. These measures aim to help SMEs secure profit margins sufficient enough to raise salaries.

While acknowledging the government’s efforts to date, Kobayashi said momentum must be further built upon. 

“We must keep aiming for 5% wage growth through improved productivity as well as fair negotiations between companies to reflect higher costs in prices,” said Kobayashi. 

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