Traders are positioning for the yen to breach 161.95 against the dollar, a level that would mark the Japanese currency's weakest point since December 1986. The yen already slid to 160.80 on Wednesday as the greenback strengthened on bets for Fed rate hikes this year.

Market participants expect Japan's authorities to intervene heavily once that psychological barrier gives way. The last intervention campaign from April 28 to May 27 saw record spending of ¥11.73 trillion ($73 billion). Analysts say another round of similar magnitude is likely when dollar-yen approaches 162.

The Bank of Japan raised its benchmark rate to the highest level since 1995, yet investors remain skeptical that policymakers are moving quickly enough on inflation. Junya Tanase of JPMorgan Chase notes the Fed's hawkish turn makes a range break increasingly probable.

Intervention at current levels would probably achieve limited results given dollar strength. Authorities will likely wait until dollar-yen nears 162 before acting, though such moves may only temporarily stem the yen's broader decline.