The Japanese yen broke past 161 against the U.S. dollar late Thursday in Tokyo, falling as low as 161.80 and putting the currency within striking distance of a 40-year low even after Tokyo spent more than 11.7 trillion yen, or $72.8 billion, defending it in April and May and the Bank of Japan raised its policy rate to a 31-year high this week.

A move beyond 161.96 would leave the yen at its weakest level against the dollar since 1986. That a record intervention and the central bank's first rate increase in months have failed to halt the slide has put Finance Minister Satsuki Katayama on the defensive and reset market expectations for a third round of currency operations within weeks.

Why the defense isn't holding

The yen's weakness is structural, not speculative, strategists told CNBC. The 10-year Japanese Government Bond yields 2.64 percent; the 10-year U.S. Treasury yields 4.451 percent. That spread keeps the carry trade — borrowing in yen to buy higher-yielding dollar assets — profitable enough to overwhelm the BOJ's quarter-point tightening on Tuesday.

Masahiko Loo, senior fixed income strategist at State Street Investment Management, called the rate hike a "Band-Aid on a bullet wound" for the currency. Katayama's repeated warnings since early June that Japan was prepared to take decisive action, Loo added, eroded the surprise that makes intervention work: "Policymakers have telegraphed their warning so clearly that a preemptive strike might only bring fleeting relief."

Politics in the way

Prime Minister Sanae Takaichi's government compounds the problem. The administration favors easy monetary policy to drive growth, a stance that has cooled foreign portfolio inflows and limited how aggressively the BOJ can move. Takaichi in February nominated two reflationist academics to the central bank's board. One of them, Toichiro Asada, cast the lone dissenting vote against Tuesday's rate increase.

May inflation data released Friday gave Katayama no new ammunition to demand faster tightening. Core inflation held at 1.4 percent, matching the Reuters consensus and unchanged from April. Headline inflation rose to 1.5 percent. Producer prices, by contrast, climbed 6.3 percent from a year earlier, the fastest in more than three years, as the U.S.-Iran war kept energy costs elevated and forced Japan to spend more dollars on imported fuel.

The intervention question

Nomura strategist Naka Matsuzawa wrote Wednesday that the chance of intervention remained high, noting that "The market's speculative short JPY positioning has risen further, beyond levels seen before the Golden Week interventions" in early May, when Tokyo is widely believed to have sold dollars near the 158 level. Hirofumi Suzuki, head of research at Sumitomo Mitsui Banking Corporation, told CNBC that for now "the authorities are likely still at the stage of closely monitoring price action."

Japanese officials had not publicly commented on a fresh intervention by press time.

The next test arrives on the screens. If 161.96 gives way, Katayama will be choosing between a third round of dollar sales into a market that is now expecting them and a public concession that, with the carry trade intact and Takaichi's growth agenda in place, there is nothing Tokyo can do alone.