US Treasury: The Bank of Japan should continue to tighten monetary policy.

The US Treasury Department said on Thursday that the Bank of Japan should continue to tighten monetary policy, which will support the "normalization of a weaker yen" and the rebalancing of bilateral trade. The US Treasury Department stated in its report to Congress on exchange rates: "The Bank of Japan should continue to tighten policy to address domestic economic fundamentals, including economic growth and inflation, to support the normalization of a weaker yen against the US dollar and the structural rebalancing urgently needed in bilateral trade." The report mentioned Japan, stating: "Government investment tools such as large public pension funds should make overseas investments for risk-adjusted returns and diversified investments, rather than targeting exchange rates for competitive purposes." The rare explicit mention of Japan's monetary policy by the Bank of Japan has shifted US attention to Japan's ultra-low interest rates, which are seen as one of the factors leading to the weakness of the yen against the US dollar. When asked about the report, Japanese Finance Minister Taro Aso said on Friday that the Japanese government will leave monetary policy decisions to the Bank of Japan. He stated at a regular press conference: "Based on this, we don't want to comment on the content mentioned in the report." Regarding the issue of pension funds mentioned in the report, Aso said it is natural for pension funds to pursue their own objectives in fund management. The US Treasury Department stated that it did not find any major trading partners manipulating currency in 2024. However, countries such as Japan, South Korea, Singapore, Vietnam, Germany, Ireland, and Switzerland are on its monitoring list and require additional foreign exchange reviews. The Bank of Japan ended its large-scale monetary stimulus policy last year and raised short-term rates to 0.5% in January this year as officials believe Japan will continue to achieve its 2% inflation target. Despite the Bank of Japan indicating readiness to further raise interest rates, the economic impact of the US tariff increases forced it to lower economic growth expectations in May. It is believed in the market that the slow pace of rate hikes by the Bank of Japan is a key factor in the weakening of the yen against other currencies. A survey conducted from May 7th to 13th showed that most analysts expect the Bank of Japan to keep rates unchanged until September, but more than half of analysts expect rate hikes before the end of the year.