* The yen weakened to 162.50 per dollar, its lowest level

since 1986

* Japan spent 11.7 trillion yen in April and May to support

the currency

* The dollar index rose 0.15% to 101.26 and was set for a

1.4% quarterly gain

(Updated in New York morning time)

By Karen Brettell and Alun John

NEW YORK/LONDON, June 30 (Reuters) - The dollar gained on

Tuesday and pushed the yen to its lowest levels since 1986,

heightening expectations that direct intervention from Tokyo may

be near and also putting the euro under pressure.

The U.S. dollar climbed to as high as 162.50 yen and was

last at 162.42, up 0.3%. Japanese Finance Minister Satsuki

Katayama reiterated that authorities were ready to respond

appropriately at any time, but refrained from stronger rhetoric.

"The dollar is the main story at the moment and dollar/yen

the key focus," said Lee Hardman, senior currency analyst at

MUFG.

The dollar has been supported by markets seeing a higher chance

of Federal Reserve rate hikes. U.S. inflation is well above

target, the economy is growing and policymakers' new quarterly

projections show nine out of 19 anticipate a rate hike by

year-end.

Katayama's comments "avoided the verbal escalation that

often precedes a buying effort, instead reiterating that

authorities stand ready to respond at any time," said Karl

Schamotta, chief market strategist at Corpay.

That said, "we would note that Thursday's non-farm payrolls

report and Friday's Independence Day holiday - when US liquidity

will thin dramatically - could provide attractive opportunities

for wrong-footing speculative short positions," Schamotta said.

Most U.S. markets will close on Friday for the Independence

Day holiday and foreign exchange trading volumes are expected to

be light.

Thursday's jobs report for June is the week's main U.S.

economic event. Three consecutive months of employment data

showing far stronger job gains than expected have reinforced the

more hawkish view on Fed policy.

Economists polled by Reuters expect the report to show

employers added 110,000 jobs during the month, with the

unemployment rate holding steady at 4.3%.

The dollar index, which measures the U.S. currency

against six other units, rose 0.15% to 101.26, set for a 1.4%

rise in the quarter after gaining 1.6% in the first three months

of 2026.

YEN'S FIGHT AGAINST THE TIDE

The dollar's strength has been most visible on the Japanese

yen. Even with the Bank of Japan's latest rate hike, rates

remain far below those in the United States, leaving a wide

yield gap that favours the dollar and sustains carry trades, in

which investors borrow cheaply in yen and invest in

higher-yielding currencies.

The greenback is heading for a 2.3% increase against the

Japanese currency in the second quarter, its fourth straight

quarter of gains and the longest such streak in four years as a

wide interest rate gap drags the yen lower.

Japanese authorities stepped into the market spending 11.7

trillion yen ($72.25 billion) in April and May to support the

currency, but the impact of this has already faded.

"We think they'll come in again at some point," said

Hardman, "though the move in April and May didn't really reverse

the trend so maybe that's made them more reluctant."

He also noted that, unlike in April, this time the yen had

only really been weakening against the dollar. The euro was last

at 185.34 yen, elevated compared with historical levels, but

still below its April record high of 187.95.

Elsewhere, the euro dipped 0.12% at $1.1407, not far

from the one-year low it hit last week. As well as being on the

other side of the strong dollar, on Wednesday the currency was

also digesting cooler inflation data from France, Italy and

major German states.

The European Central Bank hiked rates earlier this month,

and markets expect it to do so again by year-end, though if

inflation slows and the economy struggles there is a chance it

may not.

Sterling fell 0.15% to $1.3236..