The US dollar climbed to a 40-year high against the Japanese yen on Tuesday, intensifying pressure on Tokyo to act as markets tested the authorities’ willingness to intervene to support the struggling currency.
The dollar rose as high as 162.41 yen, its strongest level since 1986, before easing slightly to 162.15 yen, still higher on the day.
The yen’s continued weakness has raised concerns that Japanese authorities could return to the foreign exchange market after previous interventions failed to reverse the broader downward trend.
Japanese Finance Minister Satsuki Katayama reiterated that authorities were prepared to respond appropriately if needed but stopped short of issuing stronger warnings over possible intervention.
“The dollar is the main story at the moment and dollar/yen the key focus within that,” said Lee Hardman, senior currency analyst at MUFG.
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He said markets had increased expectations of a potential US Federal Reserve rate hike, supporting the dollar and adding pressure on the yen.
The dollar’s strength has been driven by expectations that the Federal Reserve may keep interest rates higher for longer as US inflation remains above target and economic growth continues to show resilience.
At its latest meeting, Fed policymakers’ quarterly projections showed nine of 19 officials expected a rate increase by the end of the year.
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Investors are now closely watching upcoming US jobs data for signals on the future path of monetary policy.
The dollar index, which measures the greenback against six major currencies, recovered some losses from the previous session and stood at 101.32. It was on track for a 1.4 percent quarterly gain after rising 1.6 percent in the first quarter of 2026.
The yen has been particularly vulnerable because interest rates in Japan remain far below those in the United States, creating a wide yield gap that favours the dollar.
The difference has encouraged carry trades, where investors borrow cheaply in yen and invest in higher-yielding assets elsewhere, further weighing on the Japanese currency.
The yen was set for a 2 percent decline in the second quarter, marking its fourth consecutive quarterly loss and its longest losing streak in four years.
Japanese authorities previously intervened in currency markets in April and May, spending 11.7 trillion yen (US$72.25 billion) to support the currency. However, the impact of those moves has since faded.
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“We think they’ll come in again at some point,” Hardman said, adding that the authorities may be more cautious after the earlier intervention failed to significantly change the trend.
He noted that the current weakness was more concentrated against the dollar compared with earlier periods.
The euro traded at 184.97 yen, close to historic highs but 1.5 percent below its April record of 187.95 yen.
Elsewhere, the euro weakened 0.24 percent against the dollar to US$1.1396, remaining near a one-year low reached last week. The currency was also pressured by weaker inflation data from France and several major German regions.
Markets expect the European Central Bank to continue adjusting interest rates, though slowing inflation and weak economic activity could influence future decisions.
Sterling fell 0.2 percent to $1.3234, while commodity-linked currencies also faced pressure as oil and gas prices declined.
Norway’s crown weakened to 9.951 per dollar, its weakest level in six months, and 11.31 per euro, while the Canadian dollar traded near a 14-month low at C$1.4228 per US dollar.
The Australian dollar also slipped to a three-month low of $0.6867 as investors continued to favour the US currency amid shifting expectations over global interest rates.
