Global Market: US urges BOJ to keep raising rates, flags persistent yen weakness despite narrower yield gap

The U.S. Treasury Department has called on the Bank of Japan (BOJ) to continue raising interest rates, saying further monetary policy normalisation would help contain inflation expectations and curb excessive volatility in the yen, according to a Reuters report.

In its semi-annual currency report released in Washington on Thursday, the Treasury said the yen has remained weak despite a narrowing in U.S.-Japan interest rate differentials. It noted that while global factors such as financial market volatility and higher oil prices have influenced the currency, excessive swings in the yen are undesirable.

The comments came as the Japanese currency fell to a 40-year low against the U.S. dollar on Thursday, keeping investors alert to the possibility of intervention by Japanese authorities, who have repeatedly warned they would act against excessive currency volatility.


According to Reuters, the Treasury said the yen had declined 51% between the end of 2011 and the end of April 2026, both in real effective terms and against the dollar, resulting in what it described as substantial undervaluation.

The report added that the U.S. Treasury would continue close consultations with Japan's Ministry of Finance on macroeconomic and foreign exchange matters.

The Treasury also 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.

After maintaining ultra-loose monetary policy for years, the BOJ ended its decade-long stimulus programme in 2024 as inflation remained around its 2% target. The central bank has since raised interest rates several times, including in June, when it lifted its policy rate to 1%, the highest level in 31 years.

While the BOJ has indicated it remains prepared to tighten policy further, the yen has continued to weaken amid investor concerns that the administration of Prime Minister Sanae Takaichi, viewed as dovish on monetary policy, could resist additional rate hikes.