US Urges BOJ to Keep Tightening as Yen Hits Historic Lows

The US Treasury Department has urged Japan's central bank, the Bank of Japan (BOJ), to continue raising interest rates. The move is aimed at containing inflation expectations and curbing excessive volatility in the yen.

In its semi-annual currency report, the Treasury noted that despite a narrowing in U.S.-Japan interest rate differentials, the yen remains weak. It has declined 51% between the end of 2011 and April 2026, both in real effective terms and against the dollar, resulting in what it described as substantial undervaluation.

The Treasury pointed to the impact of inflation on Japanese households, saying higher prices have eroded purchasing power despite notable gains in nominal wages. It said further policy normalisation by the BOJ would help anchor inflation expectations and reduce exchange-rate volatility.