Aw, I'm the same height as your wife, and my goal is 175 lbs - close to your wife's goal weight. I personally don't feel bound to the ideal weight on the BMI chart myself. My target weight is smack in the middle of "overweight" BMI. I have about 14 more lbs to go. Some ladies the same height have goal weights as low as the 130s, however. To each his own, I say.
Are you worried she won't look optimum when she stops dieting and is technically 12 lbs overweight? Are you concerned those 12 lbs will affect her health? Do you have a lot of physical type hobbies and interests and will those 12 lbs affect whether or not she can participate in them?
I don't know how old your wife is, but I'm almost 50. My main reasons for losing weight are to be in good health and be able to keep up activity-wise with my children (who are young, considering my age.) I also want to be able to "live a little" as they say, and as was mentioned in a previous post, so my target weight reflects all of that. Looking better (vanity reasons) are a nice bonus of losing weight, but that's pretty much my last motivation, personally. That said, duuuuuude, you can't even imagine how much better and healthier I look. Like, I can't even describe. 189 lbs. still sounds quite heavy for a woman, but I'm rockin' it! Don't be too quick to decide that 170 lbs goal weight won't be right for your wife.
That said, I do not rule out that when I reach my goal weight, I am open to considering further weight loss among other goals (weightlifting/fitness.) That has been the best thing about this weight loss journey - adapting, revising goals, unexpected discoveries even! My goalpost moved to a lower weight early on when I started seeing that I could actually diet successfully. Your wife might experience that as well. I say let her have her goal weight at whatever she sets it, even though you feel it is the wrong way to go about things.
Why don't you wait to see how things are looks wise and health wise and activity wise when she gets to goal weight. You might be surprised at your own reaction
Try your best not to exude disappointment about her current weight loss goal. I don't know how much total weight your wife has to lose, but I don't even know her and I'm so proud of her for getting started and losing 22 lbs already - that is so awesome!! I can remember when I lost my first 20 lbs. I could not believe I had done it, I was so excited. It was the first inkling of confidence in myself that I was capable of this. When you have so much weight to lose, and you know you are facing over a year of eating at a calorie deficit, it's beyond daunting. Support is a must.
Best of luck!