• USD/JPY refreshes one-month high as economic risks stemming from Iran tensions undermine the JPY.
• Geopolitical uncertainty and hawkish Fed bets underpin the USD, lending additional support to the pair.
• Verbal intervention by Japan’s Katayama keeps a lid on spot prices, though it fails to impress the JPY bulls.

The USD/JPY pair touches a fresh one-month high during the Asian session on Wednesday, though it struggles to build on the momentum beyond the 160.00 psychological mark. The fundamental backdrop, however, favors bulls and suggests that the path of least resistance for spot prices is to the upside.

The Japanese Yen (JPY) draws some support from verbal intervention by Japan’s Finance Minister Satsuki Katayama, saying that authorities are ready to act on the foreign exchange if required. However, the immediate market reaction, so far, has been muted as investors remain worried that Japan's economy will remain under strain due to the Middle East conflict and the continued disruption of supplies through the Strait of Hormuz.

The concerns were further fueled by a private survey, which showed Japan's services sector ground to a halt in May following 13 months of expansion. In fact, the S&P Global final Japan Services PMI fell to 50.0 from 51.0 in April. Additional details revealed that new business ​growth slowed for the third consecutive month, rising at the weakest pace in nearly two years. This keeps the JPY bulls on the back foot and supports the USD/JPY pair.

The US Dollar (USD), on the other hand, preserves its weekly gains amid renewed hostilities between the US, Israel, and Iran, bringing peace talks to a deadlock. In fact, ABC News reported on Tuesday that US forces had intercepted and defeated a series of Iranian missile and drone attacks targeting regional neighbors, including Kuwait and Bahrain, while also carrying out self-defence strikes on Iran’s Qeshm Island.

This comes after US Secretary of State Marco Rubio's statement that Washington will not remove sanctions on Iran in exchange for a full reopening of the Strait of Hormuz, adding that any sanctions relief is conditioned on Iran giving up enriched uranium. That said, US President Donald Trump announced the open-ended extension of the ceasefire and the continuation of a US blockade until negotiations are concluded "one way or the other.”

The latest developments keep geopolitical risk premium in play, which, along with bets that the US Federal Reserve (Fed) will raise interest rates in 2026, supports the USD and validates the near-term positive outlook for the USD/JPY pair. Hence, any corrective pullback might still be seen as a buying opportunity and remain limited as traders now look to the US ADP report on private-sector employment and the ISM Services PMI.