The U.S. Treasury Department said the Japanese yen has remained weak despite a narrowing of the U.S.-Japan interest rate gap, reiterating that excessive currency volatility is undesirable. In its semi-annual currency report released Thursday, the Treasury urged the Bank of Japan to continue raising interest rates, arguing that higher borrowing costs would help contain inflation and support a more stable exchange rate. “Monetary policy normalization would help anchor inflation expectations and reduce excessive exchange rate volatility,” the report said.
The Treasury noted that although nominal wages have risen significantly, inflation is still eroding households’ purchasing power, highlighting the need for further policy normalization. The comments came as the yen fell to a new 40-year low against the U.S. dollar on Thursday, intensifying market expectations that Japanese authorities may intervene in the foreign exchange market after repeatedly warning they would act against excessive currency moves.
