The Japanese yen breached the 161 level against the U.S. dollar late Thursday, creeping closer to a four-decade low and renewing speculation that Tokyo could intervene again to defend the currency.

After Japanese stock markets closed on Thursday, the yen weakened sharply, crossing the 161 level before extending the fall later in the day to as low as 161.80 per dollar, its lowest since July 2024.

A move beyond 161.96 against the greenback would leave the yen at its weakest since 1986.

The yen’s decline has prompted fresh warnings from Japanese finance officials. Finance minister Satsuki Katayama reportedly said at a recent G7 meeting that Japan was “prepared to take decisive action on speculative moves” in the foreign exchange markets.

The currency has remained under pressure despite more than $70 billion in interventions by the finance ministry in May and a recent rate hike by the Bank of Japan that has lifted borrowing costs to their highest level since 1995.

Bank of Japan Deputy Governor Ryozo Himino reportedly told parliament the central bank ​was closely monitoring currency movements because of their impact on the economy and inflation.

Experts told CNBC that intervention efforts were largely ineffective in containing the yen’s weakness because the factors affecting the currency were structural.

This included elevated U.S. Treasury yields, which continue to support the dollar, and the growth-focused policies of Prime Minister Sanae Takaichi’s administration, which has signaled a preference for relatively accommodative monetary conditions.

While a weaker yen has helped boost Japan’s exports and economic growth, it has also raised worries around imported inflation and the erosion of domestic household purchasing power.

Japan’s 40-year government bond yield hit a record high on Tuesday amid a broad selloff in government bonds, as investors worried that proposed cuts to the food sales tax could worsen the country’s fiscal position.

The long-dated yield rose more than five basis points to 4%, the highest level since the 40-year maturity was introduced.

Yields on shorter maturities climbed sharply as well. The 10-year Japan government bond yield rose by over six basis points to 2.3%, the highest level since 1999, while yields on the 20-year tenor jumped by around 9 basis points to 3.35%.

The selloff came a day after Prime Minister Sanae Takaichi said she plans to dissolve parliament on Friday and call a snap election on Feb. 8, setting the stage for a campaign that is expected to focus heavily on economic policy.

“Ultra‑long JGB yields are being pushed higher not only by the structural supply–demand imbalance but also by a fresh re-pricing of term and risk premium as markets absorb a more expansionary fiscal stance and persistent inflation,” said Masahiko Loo, senior fixed income strategist at State Street Investment Management. 

That repricing has revived a familiar market pattern, he added. “This has revived the classic ‘Takaichi trade‘ dynamic of stronger Nikkei, weaker JGBs and yen,” Loo told CNBC.

It was a repeat of the volatility seen in October last year, when Japanese markets reacted to comments and policy signals from Takaichi that pointed toward looser fiscal policy, which later stabilized, he added.

He added that the current move has strong technical and sentiment echoes rather than signaling structural distress.

Loo said the yield curve is likely to remain steep through the first half of this year before stabilizing as ond issuance patterns adjust and domestic banks return as buyers.

Similarly, analysts at Crédit Agricole Corporate and Investment Bank said markets are increasingly pricing in a durable shift toward aggressive fiscal policy under Takaichi. They said that stance, which aims to move away from what Takaichi described as the “shackles of excessive austerity,” could translate into larger deficits.