The market has almost no doubt: the Bank of Japan will raise rates in September — Polymarket's estimate has reached 84%.
Participants in the decentralized prediction market Polymarket estimate the probability of the Bank of Japan raising interest rates in September at 84%. Just two weeks ago, this figure stood at only 22% — such a rapid reversal in expectations reflects fundamental changes in how the regulator's monetary policy is perceived.
The sharp jump in probability occurred after the currency intervention by Japanese authorities ceased to provide support for the yen. The national currency has lost a significant portion of its recent gains and is showing its worst weekly performance in three months.
The intervention effect is weakening
Over the past week, the yen has declined by approximately 1%, reaching 159.43 per dollar. This is the worst weekly result since May. The yen has given back about half of all the gains it received after the coordinated currency intervention by the Bank of Japan in late July — early August. Before these measures, the exchange rate was near 164 yen per dollar.
A similar picture was observed earlier: after the April intervention, the yen slid back to 40-year lows in the following months. This suggests that one-off currency interventions are unable to change the long-term trend without support from monetary policy.
Notably, Tokyo's former top currency diplomat Mitsuhiro Furusawa does not rule out the resumption of using currency reserves at any moment. According to him, officials are also ready to signal to the market about a faster rate hike to support the currency.
Traders are betting on a hike
The connection between interventions and key rate decisions explains the shift in market expectations. Polymarket participants now estimate the probability of a quarter-point rate hike above 80%. The market has clearly concluded that only policy tightening can stabilize the yen.
OCBC strategist Sim Moh Siong believes that interventions alone are insufficient to reverse the dynamics of the Japanese currency. "It's no surprise that the yen has given up ground again," he notes. In his assessment, the yen needs clear support from the Bank of Japan, which is ready to tighten monetary policy. This view aligns with growing expectations of a faster rate hike, as inflation approaches the target level.
The opposite scenario carries significant risks: if the regulator leaves the rate unchanged, the market will quickly react with disappointment. After such decisions, the yen has already fallen to 160 per dollar. Market participants are now counting on steps from the central bank, rather than new currency interventions.
My analysis: The prediction market is not just statistics, but a reflection of the collective intelligence of traders and analysts. The rise in probability from 22% to 84% in two weeks is one of the sharpest reversals I have observed this year. It seems market participants have reached a consensus: the Bank of Japan has realized that verbal interventions and one-off measures no longer work, and it is now forced to act through the rate. If the regulator fails to meet expectations, volatility in the currency market could be extreme, which will inevitably affect cryptocurrency pairs with the yen as well.