U.S. Pushes Japan: Raise Rates and Stop the Yen’s Decline, Washington Says

The United States has sent a clear message to Japan: If you want to stop the yen from weakening and fix the trade imbalance between our countries, you must raise interest rates. The U.S. Treasury Department has directly urged the Bank of Japan to act more decisively.

Washington Wants a Stronger Yen and Fairer Trade This directive was outlined in a fresh report to Congress on the state of global currency markets. In it, the Treasury called on Japan’s central bank to respond to its current economic conditions — especially growth and inflation — by implementing further rate hikes. According to Washington, a stronger yen would help narrow the U.S. trade deficit and create fairer conditions for American exporters. Japan’s weak currency has long been seen as an unfair advantage for its export-driven economy.

U.S. Also Targets Japan’s Giant Pension Funds In addition to calling for rate hikes, the Treasury also criticized Japan’s massive public pension funds. It said they should not make foreign investments to influence the exchange rate. Instead, they should aim for diversified, risk-adjusted returns — not competitive currency manipulation. Such direct comments on Japan’s monetary policy are rare from the U.S. But the weak yen has remained a long-term concern for Washington. Ultra-low interest rates in Japan are seen as a key reason for its persistently undervalued currency.

Japan Responds Cautiously as U.S. Monitors More Countries Japan’s Finance Minister Katsunobu Kato offered a measured response, saying the government does not interfere with decisions made by the central bank. He declined to directly comment on the Treasury report and noted that pension funds manage their portfolios independently. Interestingly, while the U.S. has not formally labeled any country a “currency manipulator” in 2024, Japan remains on its watchlist — alongside China, South Korea, Germany, Switzerland, and several other nations.

Trump Administration Tightens the Screws This report marks the first full foreign exchange review under Donald Trump’s renewed presidency. The tone is clear: America will closely monitor any signs of currency-driven trade distortions. Treasury Secretary Scott Bessent emphasized that U.S. tolerance for imbalanced macroeconomic policies has ended. During his first term, Trump was known for taking a tough stance on trade, especially against countries like China and Japan. While tariffs were his primary tool, currency manipulation is now also in focus. The latest report even added Ireland and Switzerland to the watchlist, expanding it to nine countries.

What Does This Mean? Under a 2015 U.S. law, any country that meets two out of three criteria related to trade and currency automatically lands on the Treasury’s monitoring list. While that designation doesn’t carry immediate penalties, it increases the pressure — and the risk of retaliatory action. 📉 For now, Japan’s monetary policy — and the fate of the yen — will remain under a global spotlight.

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