US Treasury Warns Against Excessive Yen Volatility, Calls for BOJ Rate Hikes

The US Treasury Department has warned against excessive volatility in the yen, calling for further interest rate hikes by the Bank of Japan. According to a semi-annual currency report released on Thursday, yen weakness has persisted despite narrowing U.S.-Japan interest rate differentials.

Excess volatility in the yen is undesirable, and monetary policy normalization would help anchor inflation expectations, according to the Treasury Department. The report noted that the yen fell by 51 per cent between end-2011 and end-April 2026, resulting in 'substantial yen undervaluation.'

The Bank of Japan exited a decade-long 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. However, investors have pushed down the yen due to concerns that the administration may push back against further rate hikes.

The US Treasury will continue close consultations with the Japanese Ministry of Finance on macroeconomic and foreign exchange matters.