US Treasury omits call for BOJ tightening in FX report

By Leika Kihara

Jan 30 (Reuters) - The U.S. Treasury Department refrained from calling on the Bank of Japan to continue raising interest rates in its latest exchange-rate report to Congress, removing reference to do so in a previous report released six months ago.

Instead, the report said the yen stayed weak due to the wide U.S.-Japan interest rate divergence and expansionary fiscal policies of Prime Minister Sanae Takaichi's administration.

In the semi-annual report in June 2025, the Treasury Department had said the BOJ should continue to proceed with monetary tightening, which would support a "normalization of the yen's weakness" and rebalancing of bilateral trade.

The rare, explicit mention of Japan's monetary policy was interpreted by markets back then as a sign Washington saw swifter BOJ rate hikes as a more desirable way for Tokyo to arrest sharp yen falls than yen-buying currency intervention.

The January 2026 report, released in Washington on Thursday, made no such reference to BOJ policy, likely reflecting the central bank's decision in December last year to raise interest rates to a 30-year high of 0.75%.

The Japanese yen appreciated nearly 12% against the dollar over the four quarters through June 2025, albeit from a 34-year low, as the dollar weakened against a broad basket of currencies, the report said.

"Even with its recent gains, the yen has been anchored near multi-decade lows due in large part to wide policy rate differentials between Japan and its major trading partners, and the prospects for more expansionary fiscal policies under a new Japanese government," it said.

The slow pace of BOJ rate hikes has been seen by markets as among factors that kept the yen weak, posing a headache for policymakers by pushing up import prices and households' cost of living.

Investors also sold yen after Prime Minister Takaichi called a snap general election on February 8 as she seeks a mandate to ramp up her expansionary fiscal policies.

After hitting 180-month lows near 160 per dollar earlier this month, the yen rebounded to around 153 recently on talk that Japan and U.S. jointly conducted rate checks - a precursor to currency intervention.