US Treasury says Japan’s yen, BOJ policy must change

The Bank of Japan could face more pressure to speed up its interest rate increases. At this week's International Monetary Fund meetings in Bangkok, global policymakers focused on inflation driven by the Iran war and a surge in AI-related demand. Governor Kazuo Ueda talked with G7 and G20 counterparts there, including U.S. Federal Reserve Chair Kevin Warsh. Warsh called handling inflation a "common challenge" and described a "synchronous tightening in monetary policy in most places around the world, and that means there's no free riders," Reuters reported.money.usnews.com

The BOJ raised rates in September. Sources told Reuters that many inside the bank would rather hold steady at its October 29-30 meeting and wait for more data. Analysts still expect hawkish signals that keep a December hike on the table.money.usnews.com

Washington keeps up pressure

On Friday, U.S. Treasury Undersecretary Erin Browne said Japan no longer faces the deflation it lived with for more than a decade. She said the level of the yen and Japan's monetary policy "must change accordingly". "Sharp, disorderly currency moves can … really create much wider consequences that force investors to unwind positions and creates volatility across markets," Browne told reporters. She added that such moves could raise financing costs in the U.S. and globally.reuters.com

The Fed's October 27-28 decision could also shape the BOJ's debate. The wide gap between U.S. and Japanese rates has weakened the yen and pushed up import costs. Bloomberg reported that in July, Japan's Finance Ministry and the U.S. Treasury carried out an unusual joint intervention to support the yen.money.usnews.com+1

Hawkish voices inside the BOJ

The BOJ raised rates in June and again in September, lifting its policy rate to 1.25%. That still leaves real borrowing costs negative, with inflation near the bank's 2% target. On Thursday, board member Junko Koeda said the bank should not be overly cautious about raising rates because inflation risks are tilted upward. She put the neutral rate "considerably above 1%," according to investingLive.investinglive.com+1

Bloomberg reported that overnight swaps showed about a 10% chance of a hike in October and about 88% by December. The BOJ has not raised rates in back-to-back months since 1980.theedgemalaysia.com

Brokerages eye December

Several brokerages expect the next move in December. J.P. Morgan JPMorgan Chase & Co. ↗ 1.25%, Citigroup ↗ 0.85%, Nomura ↘ 0.43% and BofA Global Research Bank of America Corporation ↘ 0.91% all forecast a December 2026 hike, followed by more increases in 2027. HSBC ↗ 0.03% and Goldman Sachs The Goldman Sachs Group, Inc. ↘ 1.12% expect the next move in 2027.reuters.com

Investors are watching Ueda's news briefing in Bangkok on Friday for signs of how fast and how soon rates will rise. The BOJ's new quarterly growth and price forecasts at the end of the month could also signal how quickly it plans to move.reuters.com