US Treasury Warns on Yen Volatility, Seeks BOJ Rate Hikes

The US Treasury Department has expressed concern over excessive yen volatility and is calling for further interest rate hikes by the Bank of Japan. The department's semi-annual currency report released on Thursday noted that despite narrowing US-Japan interest rate differentials, yen weakness has persisted. This has resulted in a substantial undervaluation of the yen, with it falling 51% between end-2011 and end-April 2026 both in real effective terms and against the dollar.

The report emphasized that excess volatility in the yen is undesirable and called for monetary policy normalization to help anchor inflation expectations. The Bank of Japan has been gradually raising interest rates since exiting a decade-long stimulus in 2024, but investors have pushed down the yen due to concerns over the dovish administration of Prime Minister Sanae Takaichi potentially pushing back against further rate hikes.

The US Treasury will continue its close consultations with the Japanese Ministry of Finance on macroeconomic and foreign exchange matters. The report also noted that global factors such as financial market volatility and oil prices have likely affected the yen's value.