US Treasury Urges Japan to Raise Rates as Yen Hits 40-Year Low

The US Treasury Department called for further interest rate hikes by the Bank of Japan in a semi-annual currency report released on July 23, 2026. The report characterized the yen as having substantial undervaluation, noting a 51 percent decline between late 2011 and April 2026 in real effective terms and against the dollar. Treasury officials stated that excessive volatility in the currency is undesirable and argued that monetary policy normalization would anchor inflation expectations and protect household purchasing power.

These pressures coincide with the yen hitting a 40-year low, dropping to approximately 164 per dollar. The decline is attributed to US dollar strength fueled by inflation fears and safe-haven purchasing amid renewed strikes in the US-Iran conflict, which have increased oil prices. While the Bank of Japan raised rates to a 31-year high of 1 percent in June, investors worry that the dovish administration of Premier Sanae Takaichi may resist additional tightening.

In response to the currency slide and the US report, Japan's Finance Minister Satsuki Katayama announced that the government is prepared to take decisive action in the foreign exchange market. Katayama emphasized that Japan and the United States maintain close communication on a 24-hour basis and share the view that excessive volatility is undesirable.