• USD/JPY gains strong positive traction and reaches a four-decade high on Tuesday.
• The US-Japan rate differential continues to undermine the JPY and support the pair.
• Iran tensions and Fed hike bets revive the USD demand, further boosting spot prices.

The USD/JPY pair surges past the critical 162.00 psychological threshold, hitting a fresh four-decade high during the Asian session on Tuesday. However, expectations of a possible intervention by Japanese authorities cap further upside.

In fact, Japan's Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent agreed to take steps on currencies if necessary. Moreover, Japan’s Chief Cabinet Secretary Minoru Kihara said last week that officials will take appropriate action against the foreign exchange moves if needed. Traders also seem hesitant to place fresh bearish bets on the Japanese Yen (JPY) in the wake of the Bank of Japan's (BoJ) hawkish outlook.

In fact, the Summary of Opinions from the BoJ's June meeting showed last week that policymakers debated mounting inflation risks, with some calling for faster rate increases to near levels deemed neutral to the economy. Furthermore, signs that inflation in Japan was now picking up endorse the BoJ’s policy tightening stance. However, borrowing costs in Japan remain lower than in the US, which keeps the so-called JPY carry trade in play.

Meanwhile, mixed signals on US-Iran talks and expectations for Federal Reserve (Fed) rate hikes help the US Dollar (USD) to stall its recent pullback from a 13-month high, which turns out to be another factor supporting the USD/JPY pair. US President Donald Trump said that Iran had requested a meeting with the US in Qatar. However, Iran said that no negotiation meetings are scheduled with the US at any level in the coming days.