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 estimate the probability of the Bank of Japan raising its key interest rate at the September meeting at 84%. Just two weeks ago, this figure stood at only 22%.
Such a sharp shift in consensus 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 effect of the intervention is fading
This week, the yen fell by approximately 1% to 159.43 per dollar. This is the worst weekly result since May. The currency has already retraced about half of the gains that followed the coordinated currency intervention by the Bank of Japan in late July and early August. Before these measures, the exchange rate was holding near 164 per dollar.
A similar picture was observed earlier. After the April intervention, the yen returned to 40-year lows in the following months. Former top Tokyo currency diplomat Mitsuhiro Furusawa notes that authorities could deploy currency reserves at any moment. According to him, officials are also ready to signal to the market a faster rate hike to support the national currency.
Traders are betting on a hike
The connection between intervention and key rate decisions explains the 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 will not reverse the dynamics of the Japanese currency.
"It is not surprising that the yen has given up ground again," said Siong.
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: the regulator could leave the rate unchanged, and then the market would 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 clearly signals a paradigm shift — traders no longer believe in the effectiveness of one-off interventions and expect systemic actions from monetary authorities. If the Bank of Japan meets expectations, this could become an important factor of pressure on global carry trades, which would indirectly affect crypto markets through the dynamics of the dollar and liquidity.