Washington said yen weakness persisted despite a narrowing U.S.-Japan rate gap, calling excessive volatility undesirable and saying policy normalisation could better anchor inflation expectations.
The U.S. Treasury Department said the yen has remained weak even as U.S.-Japan interest rate differentials narrowed, and argued that further Bank of Japan rate hikes would help curb excessive currency volatility. In its semi-annual currency report released in Washington on Thursday, the Treasury said monetary policy normalisation would help anchor inflation expectations and ease swings in the yen, as inflation continued to strain household purchasing power despite notable nominal wage growth. The comments came as the yen touched a 40-year low against the dollar on Thursday, heightening market focus on possible intervention by Japanese authorities. The report said the yen fell 51% between end-2011 and end-April 2026 in both real effective terms and against the dollar, resulting in what it called substantial yen undervaluation. It also said the U.S. Treasury would continue close consultations with the Japanese Ministry of Finance on macroeconomic and foreign exchange matters. Japan’s central bank exited its decade-long stimulus in 2024 and has raised rates several times, including in June when the policy rate reached 1%, the highest in 31 years.