The yen dropped to its lowest level since 1990 on Wednesday before rebounding slightly after Japan's top monetary officials met to discuss the rapidly weakening currency and suggested they were ready to intervene.
The dollar reached 151.975 yen, its strongest against the yen since mid-1990, before easing 0.13% on the day to 151.36.
The Bank of Japan, the Finance Ministry and Japan's Financial Services Agency held a meeting in Tokyo's late trading hours, after which top currency diplomat Masato Kanda said he "won't rule out any steps to respond to disorderly FX moves."
Japanese authorities stepped in to defend the yen at 151.94 in 2022 and Finance Minister Shunichi Suzuki on Wednesday used the same words that preceded that intervention, warning Japan would take "decisive steps" against excessive currency moves.
"They are swimming against the current here, to an extent. Intervention helps in the near term, but it's not a long-term solution," said Bipan Rai, global head of forex strategy at CIBC Capital Markets in Toronto.
The yen has slumped more than 7% this year, driven by the widening gap between U.S. and Japanese bond yields, which the Bank of Japan's small interest rate hike last week did little to change.
The key to stemming the Japanese currency's decline may now be the U.S. Federal Reserve beginning an interest rate cutting cycle and a decline in government bond yields outside Japan.
"I suspect that intervention, or threats to conduct intervention, are really just a measure of buying time until we start to see things shift on a more sustained basis outside the country," Rai said.
Traders will also be focused on options expirations on Thursday in case they increase volatility in the currency pair.
About $3.13 billion in notional volumes struck around the 150-152 yen level are due to expire on Thursday, according to data compiled by Pepperstone market analyst Michael Brown.
"You may see some position covering on any intervention, which will naturally raise volumes and increase volatility."