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

The US Treasury Department has expressed concern over excessive yen volatility and called on the Bank of Japan to raise interest rates further. In its semi-annual currency report, the Treasury noted that yen weakness has persisted despite narrowing US-Japan interest rate differentials.

According to the report, the yen fell by 51% between end-2011 and end-April 2026 in real effective terms, resulting in 'substantial yen undervaluation.' The Treasury also warned that excess volatility in the yen is undesirable.

The Bank of Japan raised interest rates several times, including in June, when its policy rate reached a 31-year high of 1%. However, investors have pushed down the yen due to concerns about the Japanese government's stance on further rate hikes.