US warns against excessive yen volatility, calls for Bank of Japan rate hikes

SINGAPORE, 24 JULY 2026 —

The US Treasury warned that the yen’s slide to a 40-year low against the dollar has persisted despite narrowing US-Japan interest-rate gaps, calling excess currency volatility undesirable.

In its semi-annual currency report released in Washington on Thursday, the Treasury said monetary policy normalisation by the Bank of Japan would help anchor inflation expectations and reduce erratic exchange-rate moves. The yen traded at 162.18 per dollar at 11:30 a.m. in Tokyo, down 0.3% on the session.

The Treasury noted the yen has fallen 51% in real effective terms since end-2011 and was “substantially undervalued” at end-April 2026. Excess volatility in the yen is undesirable even after global factors such as market turbulence and oil prices eased, it said.

The warning followed the yen’s drop to its weakest level since 1984, a move that has heightened expectations of possible currency intervention by Japanese authorities. The Treasury said it will continue close consultations with Japan’s Ministry of Finance on macroeconomic and foreign-exchange matters.

Bank Negara Malaysia’s latest review noted the yen’s depreciation has amplified imported inflation in the region, according to the report. The Bank of Japan raised its policy rate to a 31-year high of 1% in June, ending a decade of massive stimulus and signalling scope for further hikes. Investors, however, have kept pressure on the yen amid concern that Prime Minister Sanae Takaichi’s dovish stance may limit additional tightening.

The yen’s real effective exchange rate has fallen every year since 2021, eroding household purchasing power even as nominal wages rose, the Treasury said.

Related: Ministry of Finance · Singapore