The market is pricing in an 84% probability of a rate hike by the Bank of Japan in September.
Participants on the decentralized prediction platform Polymarket have radically revised their expectations regarding the Bank of Japan's monetary policy. In just two weeks, the probability of a key rate hike in September has soared from 22% to 84%.
This shift in sentiment occurred after the currency intervention by Japanese authorities stopped supporting 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 Fading
This week, the yen has fallen by about 1%, reaching 159.43 per dollar. This is the worst weekly result since May. The currency has retreated by about half of the gains recorded after the coordinated intervention by the Bank of Japan in late July and early August. Before those measures, the rate was holding around 164 yen per dollar.
Notably, a similar pattern was observed earlier. After the April intervention, the yen returned to 40-year lows in the following months. This confirms that one-off targeted measures without a change in fundamental policy cannot reverse the trend.
Tokyo's former top currency diplomat Mitsuhiro Furusawa does not rule out that authorities may again tap currency reserves. However, according to him, officials are also ready to signal to the market about a faster rate hike to support the currency.
Traders Bet on a Rate Hike
It is precisely the link between interventions and key rate decisions that explains the sharp shift in market expectations. Polymarket participants now estimate the probability of a quarter-point rate hike at more than 80%. OCBC strategist Sim Moh Siong believes that interventions alone are not enough to change the dynamics of the Japanese currency.
"It's no surprise that the yen has given up ground again," the expert noted.
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 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 counting precisely on central bank steps, not on new currency interventions.
My view: The derivatives market and prediction platforms often outpace traditional analyst surveys. The rise in probability from 22% to 84% is not just a speculative move, but a reflection of real pressure on Japanese authorities. If the Bank of Japan does not meet expectations in September, the yen could face an even more aggressive sell-off, calling into question the effectiveness of the entire current currency regulation strategy.