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

The US Treasury Department has expressed concerns over excessive yen volatility and called for further interest rate hikes by the Bank of Japan (BOJ). The statement came as the yen hit a 40-year low against the dollar, prompting investors to be on high alert for possible currency intervention.

The report noted that despite narrowing U.S.-Japan interest rate differentials, yen weakness has persisted, resulting in 'substantial yen undervaluation'. Excess volatility in the yen is deemed undesirable by the US Treasury, which will continue its close consultations with the Japanese Ministry of Finance on macroeconomic and foreign exchange matters.

The BOJ 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%. Investors have pushed down the yen partly due to concern that dovish premier Sanae Takaichi's administration may push back against further rate hikes.