The US Treasury urged the Bank of Japan to keep tightening policy as the yen sank to a 40-year low against the dollar. It called excess currency volatility undesirable and flagged substantial yen undervaluation, keeping traders alert to possible intervention by Japanese authorities.
The U.S. Treasury pressed the Bank of Japan to keep tightening monetary policy as the yen hit a 40-year low against the dollar on Thursday, warning that excess currency volatility is undesirable. Its semi-annual report said yen weakness has persisted even as the U.S.-Japan interest rate gap narrowed.
In its semi-annual currency report, the Treasury linked the case for tighter policy to inflation and the exchange rate: "Monetary policy normalisation would help anchor inflation expectations and reduce excessive exchange rate volatility".
The report warned that inflation has strained Japanese households' purchasing power even as nominal wages rose notably, building the argument for higher rates. Behind that argument lies the currency's slide: the report found the yen fell 51% between end-2011 and end-April 2026 in real effective terms and against the dollar, which it called substantial yen undervaluation.
Pressure built as the yen touched its 40-year low, keeping investors alert for possible currency intervention by Japanese authorities, who have threatened to act against excessively volatile moves. Japan's central bank exited a decade-long stimulus programme in 2024 as inflation held near its 2% target, and has since raised rates several times, including a June move to a 31-year high of 1%. Yet investors keep selling the yen, partly on concern that dovish premier Sanae Takaichi's administration may push back against further rate hikes.
Source: Investing.com
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