The Treasury’s language keeps pressure on Tokyo to accelerate policy normalisation, but it stops short of any direct US action, leaving the yen’s fate largely in the Bank of Japan’s hands. With the currency at a 40-year low and Japanese authorities already signalling readiness to intervene against excessive volatility, traders are likely to stay alert for verbal or actual intervention around key technical levels. The report’s finding of substantial yen undervaluation adds to the case for further BOJ hikes, though political uncertainty around the Takaichi government’s appetite for tightening complicates the near-term outlook. Any actual intervention would likely trigger sharp, short covering driven moves rather than a sustained trend reversal.
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Washington is nudging the BOJ toward more hikes while quietly flagging the intervention risk building beneath a yen at 40 year lows.
Summary:
- The US Treasury’s semi-annual currency report says yen weakness has persisted despite a narrowing US Japan rate differential
- The report calls for further BOJ rate hikes, noting inflation has squeezed household purchasing power despite notable wage gains
- The yen fell 51 percent between end 2011 and end April 2026 in real effective terms and against the dollar, resulting in substantial undervaluation
- The report was released as the yen hit a 40 year low against the dollar, keeping markets alert to possible intervention by Japanese authorities
- The BOJ exited its long stimulus programme in 2024 and has raised rates several times, taking its policy rate to a 31 year high of 1 percent in June
- Investors have pushed the yen lower partly on concern that premier Sanae Takaichi’s dovish administration may resist further hikes
The US Treasury Department has called on the Bank of Japan to continue raising interest rates as the yen slid to a 40 year low against the dollar, warning that excessive currency volatility remains undesirable even as investors stay alert for possible intervention by Japanese authorities.
In its semi-annual currency report released in Washington, the Treasury said yen weakness has persisted despite a narrowing of the interest rate differential between the US and Japan. It argued that monetary policy normalisation would help anchor inflation expectations and reduce excessive exchange rate volatility, while acknowledging that global factors such as financial market volatility and oil prices have also weighed on the currency.
The report found the yen has fallen 51 percent between the end of 2011 and the end of April 2026, both in real effective terms and against the dollar, a decline it characterised as resulting in substantial yen undervaluation. The Treasury said it would continue close consultations with Japan’s Ministry of Finance on macroeconomic and foreign exchange matters.
The timing is notable. The yen touched its 40 year low against the dollar on the day the report was released, keeping traders on watch for currency intervention by Japanese authorities, who have previously signalled they would act against excessively volatile moves. The Bank of Japan exited a decade long stimulus programme in 2024 as inflation held near its 2 percent target, and has since raised rates several times, including a June move that took its policy rate to a 31 year high of 1 percent.
Despite the central bank signalling readiness to keep tightening, investors have continued selling the yen, partly on concern that the administration of dovish premier Sanae Takaichi could push back against further hikes. That political overhang, combined with a currency already flagged as substantially undervalued, leaves the yen caught between US pressure for normalisation and domestic uncertainty over how far Tokyo is willing to go.
This article was written by Eamonn Sheridan at investinglive.com.