SynopsisJapanese Finance Minister Satsuki Katayama said authorities were ready to respond appropriately at any time, without giving stronger signals. The sharp decline has fuelled growing speculation that Tokyo could be edging closer to direct intervention to support the currency.Listen to this article in summarized formatAPThe Japanese yen tumbled to a four-decade low on Tuesday, hitting 162.41 per dollar for the first time in 40 years as a wide interest rate gap between Japan and the United States, strong dollar and expectations of further US rate hikes weighed on the currency, Reuters reported.The currency later traded at 162.23, while the dollar eased from 13-month highs ahead of US jobs data.Japanese Finance Minister Satsuki Katayama said authorities were ready to respond appropriately at any time, without giving stronger signals. The sharp decline has fuelled growing speculation that Tokyo could be edging closer to direct intervention to support the currency.Market participants remained alert to any signals from Japanese officials, with speculation building that intervention may be considered after the yen slipped to its weakest level since 1986.Here are the 3 reasons behind the fall: 1) Dollar strengthensThe US dollar regained some ground on Tuesday, with the dollar index, which tracks the currency against a basket of six major peers, recovering from the previous session’s losses to trade at 101.32. The index remains on track for a 1.4 per cent quarterly gain after rising 1.6 per cent in the opening quarter of 2026.According to Reuters, market positioning data showed investors have steadily built record bullish bets on the dollar in the first half of the year, reflecting strong conviction in its continued strength.Among major currencies, the euro slipped to a one-year low, while the Australian and New Zealand dollars also weakened, with sterling under pressure as investors weighed UK fiscal signals.Strategists at BlackRock Investment Institute said that attention has shifted from whether the dollar can hold steady to how long its strength can persist without affecting broader risk sentiment. However, they noted that current levels largely reflect underlying fundamentals, limiting room for a sustained rally, and suggested markets may be overpricing future rate expectations.2) Growing expectations of US rate hikeAccording to Reuters, the yen remains under pressure from a widening interest rate gap between Japan and the United States, as traders increasingly price in the possibility of further Federal Reserve rate hikes later this year.Higher US yields, driven by expectations of continued Fed tightening, have boosted the dollar’s attractiveness against the low-yielding Japanese currency, keeping the yen on the defensive.3) Rising short positionsTraders have also become more confident in the yen’s weakness, steadily increasing bearish positions. Latest US regulatory data, as quoted by Reuters, showed $11.3 billion in net short bets, close to a two-year high.The yen has stayed under pressure despite earlier intervention worth 11.7 trillion yen ($72.25 billion) and recent Bank of Japan rate hikes, Reuters reported, as ongoing geopolitical tensions from the Iran conflict have kept inflation concerns elevated and clouded the global interest rate outlook.Read More News on(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price...moreless(You can now subscribe to our ETMarkets WhatsApp channel)Read More News on(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price...moreless