I can connect with my regular J-Link Compact. However, after recent update, if I use my Flasher Arm I get:

SEGGER J-Link Commander V7.70a (Compiled Aug 10 2022 16:34:16)
DLL version V7.70a, compiled Aug 10 2022 16:32:56

Connecting to J-Link via USB...O.K.
Firmware: J-Link / Flasher ARM V5 compiled Aug 9 2022 13:19:00
Hardware version: V5.00
J-Link uptime (since boot): 0d 00h 00m 12s
S/N: XXXXXXXXX
License(s): JFlash, GDB
USB speed mode: High speed (480 MBit/s)
IP-Addr: DHCP (no addr. received yet)
VTref=2.940V


Type "connect" to establish a target connection, '?' for help
J-Link>Connect
Please specify device / core. <Default>: MK81FN256XXX15
Type '?' for selection dialog
Device>
Please specify target interface:
J) JTAG (Default)
S) SWD
T) cJTAG
TIF>s
Specify target interface speed [kHz]. <Default>: 4000 kHz
Speed>
Device "MK81FN256XXX15" selected.


Connecting to target via SWD
InitTarget()
Connect Under Reset
Communication error while accessing MDM-AP.
Connect Under Reset
InitTarget()
Connect Under Reset
Communication error while accessing MDM-AP.
Connect Under Reset

****** Error: InitTarget(): PCode returned with error code -1

InitTarget()
Connect Under Reset
Communication error while accessing MDM-AP.
Connect Under Reset
InitTarget()
Connect Under Reset
Communication error while accessing MDM-AP.
Connect Under Reset

****** Error: InitTarget(): PCode returned with error code -1

Cannot connect to target.
J-Link>

Please mark this issue resolved.

The JTAG connector pin-3 (nTRST) and pin-5 (TDI) were both grounded on the board. Cutting the traces to allow them to float appears to solve the issue with Flasher-ARM SWD programming.

(Note the the grounded pins did not affect J-Link SWD programming)