The market has almost no doubt: the Bank of Japan will raise rates in September with a probability of 84%.
Data from the decentralized prediction platform Polymarket shows a radical shift in market participants' expectations regarding the Bank of Japan's monetary policy. In just two weeks, the probability of a key interest rate hike at the September meeting has soared from 22% to an impressive 84%.
This shift in sentiment has occurred against the backdrop of the rapidly fading effect of the Japanese authorities' currency intervention. The yen, which had previously shown steady gains, is now quickly losing its hard-won positions, approaching its most significant weekly decline in three months.
Interventions no longer work
This week, the yen has fallen by approximately 1%, reaching 159.43 yen per US dollar. This is the worst weekly result since May. Notably, the Japanese currency has already given back about half of the gains it received after the coordinated currency intervention conducted by the Bank of Japan in late July and early August. Before these measures, the rate was holding around 164 yen per dollar.
Similar dynamics were observed earlier: after the April intervention, the yen once again retreated to its 40-year lows in the following months. This clearly demonstrates the limited effectiveness of one-off market measures without changes in fundamental macroeconomic factors.
Tokyo's former top currency diplomat Mitsuhiro Furusawa recently emphasized in an interview that authorities are ready to deploy currency reserves at any moment to stabilize the situation. However, according to him, officials are also considering the possibility of sending the market a signal of readiness for faster policy tightening to support the national currency.
Betting on tightening
It is precisely the link between interventions and key rate decisions that explains such a sharp shift in expectations. Traders on Polymarket now estimate the probability of a quarter-point rate hike at more than 80%, reflecting a consensus about the inevitability of action by the regulator.
Market strategists agree that interventions alone are insufficient to reverse the trend. As one leading OCBC analyst noted, the yen requires 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 gradually approaches the target level.
The opposite scenario carries significant risks: if the regulator leaves the rate unchanged, the market could react with sharp disappointment, instantly pushing the yen down to 160 per dollar. Currently, market participants are betting on decisive steps by the central bank rather than new currency interventions.
My view: the 84% probability looks overstated, given the Bank of Japan's traditional caution. However, the current yen dynamics indeed leave the regulator little room for maneuver. If inflationary pressure continues to intensify, delaying a rate hike could cost the Japanese economy far more than a premature step. For the crypto market, this means potential yen strengthening and, as a result, possible pressure on risk assets, including bitcoin.