TOKYO, July 24 : The U.S. Treasury Department said yen weakness has persisted despite the narrowing of U.S.-Japan interest rate differentials, warning excess volatility in the currency was undesirable.
The Treasury also called for further interest rate hikes by the Bank of Japan, warning that inflation has strained households’ purchasing power even as nominal wages rose notably.
“Monetary policy normalisation would help anchor inflation expectations and reduce excessive exchange rate volatility,” the Treasury said in its semi-annual currency report released in Washington on Thursday.
The statement came as the yen hit a 40-year low against the dollar on Thursday, keeping investors on alert for possible currency intervention by Japanese authorities who have threatened to act if they saw excessively volatile moves in the currency.
The yen fell by 51 per cent between end-2011 and end-April 2026 both in real effective terms and against the dollar, resulting in “substantial yen undervaluation,” the report said.
“Indeed, yen weakness has persisted despite a narrowing of U.S.-Japan interest rate differentials. While global factors such as financial market volatility and oil prices have likely affected the yen, excess volatility in the yen is undesirable,” it said.
“The U.S. Treasury will continue its close consultations with the Japanese Ministry of Finance on macroeconomic and foreign exchange matters.”
As inflation hovered around its 2 per cent target for four years, the Bank of Japan exited a decade-long, massive stimulus in 2024 and raised interest rates several times including in June, when it took its policy rate to a 31-year high of 1 per cent.
While the central bank has signalled its readiness to keep raising rates, investors have pushed down the yen partly due to concern the administration of dovish premier Sanae Takaichi may push back against further rate hikes.
