The market is almost certain: the Bank of Japan will raise rates in September — probability 84%
Data from the decentralized prediction platform Polymarket shows a dramatic shift in market participants' expectations regarding Japan's monetary policy. Just two weeks ago, the probability of the Bank of Japan (BoJ) raising its key interest rate at the September meeting was estimated at only 22%, but now that figure has surged to 84%.
This sharp change in sentiment is a direct consequence of the failure of Japanese authorities' currency interventions. Despite massive injections to support the yen, the national currency continues to depreciate, posting its worst weekly performance in three months.
The intervention effect is fading
This week, the yen has fallen by approximately 1%, reaching 159.43 per dollar. This is the worst weekly performance since May. Notably, the currency has already given back about half of the gains seen after the coordinated currency intervention in late July and early August. Before those measures, the exchange rate was hovering near 164 yen per dollar.
This scenario has been seen before: after the April intervention, the yen returned to its multi-year lows in the following months. This confirms the limited effectiveness of one-off measures.
Former top Tokyo currency diplomat Mitsuhiro Furusawa recently noted that authorities could tap currency reserves again at any moment. According to him, officials are also ready to signal a faster rate hike to support the currency.
Traders are betting on tightening
The link between interventions and key rate decisions explains the shift in expectations. Polymarket participants now place the probability of a quarter-point rate hike above 80%. Inflation in Japan is approaching the target level, creating fundamental conditions for policy normalization.
OCBC strategist Sim Moh Siong believes that interventions alone will not reverse the yen's dynamics. "It's no surprise that the yen has given up ground again," he said. In his view, the yen needs clear support from the Bank of Japan, which is ready to tighten monetary policy.
The opposite scenario carries 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. Currently, market participants are betting on central bank moves rather than new currency interventions.
My analysis: The prediction market in this case acts as a sensitive barometer of sentiment, but 84% is already nearly a consensus. If the BoJ meets expectations, we could see yen strengthening, which would put pressure on Japanese export stocks and likely trigger a correction in carry-trade strategies, indirectly affecting cryptocurrency markets as well due to global risk appetite.