The market is pricing in an 84% probability of a rate hike by the Bank of Japan: the yen comes under pressure again.
Participants of the decentralized forecasting platform Polymarket have sharply revised their expectations regarding Japan's monetary policy. In just two weeks, the probability of a key rate hike by the Bank of Japan at the September meeting has surged from 22% to 84%. This is a signal that cannot be ignored.
The reason for this reversal is the rapid weakening of the yen. Despite a recent currency intervention by Japanese authorities, its effect proved short-lived. This week, the USD/JPY exchange rate declined by approximately 1%, reaching 159.43, marking the worst weekly performance in the last three months.
Interventions no longer work
The yen has already lost roughly half of the gains it made following the coordinated intervention by the Bank of Japan in late July and early August. At that time, the exchange rate rebounded from around 164 yen per dollar, but it has now returned to a downward trend. This mirrors the April situation: after the first intervention, the currency slid back to 40-year lows over the following months.
Notably, even Tokyo's former top currency diplomat Mitsuhiro Furusawa has publicly acknowledged the possibility of using currency reserves again. However, he emphasized that authorities could also take a more decisive step—accelerating rate hikes to support the national currency. According to Polymarket data, the market is betting on the latter option.
Betting on the central bank, not interventions
The connection between interventions and key rate decisions is becoming increasingly evident. Traders understand that one-off measures do not change the fundamental trend. As strategists rightly point out, the yen needs clear support from monetary policy, not sporadic injections. Inflation in Japan is approaching the target level, giving the regulator a formal reason to tighten.
The opposite scenario—keeping the rate unchanged—carries serious risks. In the past, such decisions caused the yen to instantly plunge to 160 per dollar. Currently, market participants are betting on a central bank move rather than further interventions. If the Bank of Japan disappoints, the reaction could be painful.
My view: the sharp jump in probability on Polymarket is not just speculation but a reflection of real pressure on the regulator. The yen is at a critical point, and delaying a rate hike could force authorities into more aggressive and costly interventions. The September meeting is becoming one of the key events for the currency market this year.