By Fabiana Negrin Ochoa and Megan Cheah

At the start of the year, BNY Investments' Aninda Mitra and his colleagues wondered if they should hedge against yen appreciation.

But they took the yen hedge off the table when the Iran conflict broke out. "We realized quickly that policy rates and bond yields would rise elsewhere, which would disadvantage the Japanese yen yet again," Mitra said.

It turned out to be the right call. The yen has declined gradually amid a Middle East-driven energy-price shock, which the dollar is relatively insulated from. In the past week, the Japanese currency fell to a 40-year low of 162.83 against the greenback, and last traded at 160.06.

Admittedly, BNY Investments, which had $2.1 trillion in assets under management as of end-March, doesn't have a very active position in the yen.

"We're not short JPY per se. It's just that we are more interested in the equities angle," said Mitra, head of Asia macroeconomics & investment strategy.

Equities have done quite well, the strategist added, citing tailwinds like the Takaichi administration's continuation of corporate governance improvements, including share buybacks and higher dividends.

BNY Investments has also put a pin in the thesis that the so-called yen carry trade, in which investors borrow in a cheaper currency like yen to invest in a higher-yielding one like the dollar, would crumble as the year wore on.

"We tinkered around with the notion that the yen carry trade could end because we thought the [Federal Reserve] would stay on hold through this year whilst the Japanese would hike, but if anything, those expectations have been overwhelmed by the repricing of Fed policy," said Mitra, an industry veteran with 25 years in financial services.

"If anything, the yen carry trade's back."

Japanese officials have fired off verbal warnings over the past weeks against speculative yen short positioning, but relief has been fleeting, leaving markets on high alert for more forceful intervention.

If that does happen, it may be complemented at some point by a surprise rate hike from the Bank of Japan, Mitra said.

He thinks the market is underestimating the odds of either a move before December or of more than one hike this year.

BNY Investments' base case is still for one hike, but with a strong possibility of an additional one before the year is out.

For Mitra, the key question isn't whether tightening will bring real rates out of negative territory, but whether it will be enough to stabilize the yen.

His answer to that is: Possibly.

Delivering a surprise hike without hurting the equity market or the real economy is a big ask, but if the aim is to help the yen, it's hard to see any other option than more forceful monetary policy or foreign-exchange intervention.

Encouragingly, Japan's current approach seems to have the acknowledgment of the U.S. Treasury, Mitra said. "Even if there's no active coordination per se, both sides seem to be on the same page."

Discouragingly, a repricing of market expectations on the Fed's rate path is out of Japanese authorities' control.

That suggests that any intervention would have to be bigger than the about $73 billion record amount that Tokyo spent in April and May.

Just how big intervention needs to be depends on a lot of factors, but it ultimately might not be sufficient, Mitra said. "It would need to be backed up by some rate compression."

Though he declined to speculate on what form international coordination could take, Mitra said he wouldn't fully rule out more joint collaboration on the side if rate differentials don't narrow or if a pickup in forex intervention fails to stabilize the yen.

Still, while a U.S.-Japan move is conceivable, Mitra doesn't think it's plausible yet.

"I think more coordinated international intervention would probably have to await what Japan can try and accomplish on its own," he said.

Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com and Megan Cheah at megan.cheah@wsj.com