(Updates prices)

* Yen hits 160, testing intervention tolerance

* Dollar, oil set for weekly gain on Gulf tensions

* Markets await U.S. employment report

By Amanda Cooper

LONDON, June 5 (Reuters) - The Japanese yen tested the

160-per-dollar barrier on Friday, drawing sharp official

warnings, as the dollar held firm ahead of key U.S. employment

data and Middle East tensions underpinned safe-haven demand.

Peace talks between the U.S. and Iran are at a stalemate,

and a reignition of hostilities this week has kept oil above $90

a barrel, raising risks to global growth.

The yen headed for a fourth straight weekly loss against

the dollar, having unwound gains from official buying in late

April and early May. By Friday, it was pressing the

160-per-dollar mark that has triggered intervention in the past,

prompting another warning from Finance Minister Satsuki

Katayama, who said Japan was ready to respond at any time and

reserved the right to take "decisive action" against excessive

volatility. The yen was last at 159.9 per dollar.

"Markets are probably a bit reluctant to try to test the BOJ too

much" ahead of the U.S. nonfarm payrolls report later Friday, as

authorities have shown renewed willingness to intervene, said

Khoon Goh, head of Asia research at ANZ.

Despite the risk of intervention, investors have built the

largest bearish yen position since July 2024 in recent weeks

. Without a meaningful shift in the outlook for

rates and economic growth in Japan, analysts say there is little

incentive to unravel those holdings, currently worth nearly $9

billion, according to LSEG data.

The Bank of Japan is widely expected to raise interest rates

this month, as rising energy import costs add to price

pressures. Money markets also point to a second hike by

year-end.

GULF HOSTILITIES SUPPORT DOLLAR DEMAND

The dollar has been the stand-out in foreign exchange this

week, rising about 0.4% against a basket of major currencies

and around 1.3% over the past month. It has been

supported by strong U.S. data, expectations for Federal Reserve

rate hikes and safe-haven demand amid concerns about the impact

of higher energy prices on importers such as the euro zone,

Japan and China.

Citi's U.S. economic surprise index has hit a three-year

high as data on employment, consumer spending and

business activity have beaten forecasts, reviving the "American

exceptionalism" narrative. U.S. 10-year Treasury yields

have risen 50 basis points since the start of the

Iran war, more than those of any other major economy, except

Britain where yields are up 66 bps.

"The U.S. is still providing positive economic surprises ...

with two-year yields north of 4%, you end up with a scenario

where suddenly the conditions for the dollar remain reasonably

supportive. And conversely, from a euro perspective, the

perpetuation of elevated energy prices remains a drag on

activity there," CIBC Capital Markets head of G10 FX, Jeremy

Stretch, said.

The euro, down 1% over the past month despite expectations

of up to three European Central Bank rate hikes this year, was

up 0.2% on Friday at $1.1638. The pound rose

0.3% to $1.347.

Markets now await U.S. nonfarm payrolls later in the day. A

Reuters poll forecast an 85,000 rise in jobs in May after a

115,000 increase in April, with the unemployment rate seen

steady at 4.3%.

(Additional reporting by Jiaxing Li in Hong Kong. Editing by

Thomas Derpinghaus, Mark Potter and Alexander Smith)