By Ronnie Harui

The yen hit a fresh 40-year low against the dollar in Asia on Wednesday, keeping traders on high alert for possible currency intervention by the Japanese government.

Ongoing expectations for a gradual pace of interest-rate increases by the Bank of Japan, combined with growing prospects for the Federal Reserve to raise the federal-funds rate this year, are pressuring the yen lower and the dollar higher.

The dollar's fresh 40-year high against the yen is "leaving markets on watch for stronger verbal warnings or outright intervention from Japanese authorities," said Taylor Nugent, senior economist at National Australia Bank, in commentary.

Japanese Finance Minister Satsuki Katayama on Tuesday renewed her pledge to address excessive yen volatility. "We will take appropriate action on currencies at any time as needed," Katayama said at a news conference. "During the recent online meeting between the Japanese and U.S. finance chiefs, we confirmed that taking decisive steps is included" as an option, she added, suggesting that the Japanese government could step in to prop up the yen.

The yen recently weakened 0.1% to 162.77 per dollar after earlier touching 162.83, the lowest intraday level against the greenback since 1986, according to LSEG data.

"USD-JPY has moved into a new and higher range for external and domestic reasons," said Joey Chew, head of Asia FX research, and Paul Mackel, global head of FX research, at HSBC Global Investment Research in a note. "We still think MoF will intervene at some point," they added.

Japanese Prime Minister Sanae Takaichi last month unveiled a plan targeting 370 trillion yen, equivalent to $2.276 trillion, in combined public and private investment through the fiscal year ending March 2041. However, the sources of funding for the investment plan remain unclear.

"Fiscal concerns are coming to the fore again as the government considers various new expenditures and investments," HSBC's Chew and Mackel said.

Japan has struggled to stem the yen's persistent weakness. Data from the Ministry of Finance showed Japan spent a record 11.73 trillion yen, equivalent to about $72.15 billion, on currency intervention between April 28 and May 27. But that offered only temporary relief, with the selloff resuming as risk appetite returned amid easing tensions in the Middle East.

Japan's foreign-exchange reserves remain sizable at $1.09 trillion, split between deposits of $162 billion and securities of $932 billion, Wells Fargo Macro Strategy's Chidu Narayanan said in commentary.

"Deposits alone are sufficient for further intervention, but history shows authorities tend to sell/roll off securities to replenish deposits," the head of APAC macro strategy said. "So, the MoF has plenty of space to intervene again near-term, and in size," Narayanan added.

Write to Ronnie Harui at ronnie.harui@wsj.com