The market is pricing in an 84% probability of a rate hike by the Bank of Japan in September.
Participants of the decentralized prediction 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.
Such a rapid shift in sentiment coincided with the weakening effect of currency interventions by Japanese authorities. The yen, which strengthened from around 164 per dollar after coordinated regulator actions in late July — early August, has now lost a significant portion of its gains. This week, the USD/JPY rate fell by approximately 1%, reaching 159.43, marking the worst weekly performance since May.
Yen under pressure again: are interventions no longer working?
The current dynamics resemble the April scenario, when after the first wave of interventions, the currency slid back to historic lows over several months. It is obvious that one-off targeted interventions without changes in fundamental policy cannot reverse the trend. Tokyo's former top currency diplomat Mitsuhiro Furusawa directly points to the authorities' readiness to deploy reserves at any moment but emphasizes: the market needs a more substantial signal — an acceleration in the pace of policy tightening.
Betting on the central bank's decisiveness
This is why traders and analysts are increasingly focusing on the Bank of Japan's September meeting. The link between interventions and rate decisions is becoming decisive for the yen's trajectory. As OCBC strategist Sim Moh Siong rightly notes, interventions alone will not change the dynamics of the Japanese currency — clear support from monetary policy is needed. Inflation in Japan is approaching the target level, giving the regulator formal grounds for tightening.
However, the opposite scenario also carries serious risks. If the central bank shows caution and leaves the rate unchanged, market disappointment could instantly crash the yen — this has already happened when the rate retreated to 160 per dollar. Currently, market participants are betting on the regulator's actions rather than new interventions.
My view: the 84% probability looks overstated, and the market may be overestimating the Bank of Japan's resolve. The regulator is traditionally cautious and is unlikely to raise rates without unconditional evidence of inflation sustainability. However, the very fact of such a sharp revision in expectations is a powerful indicator that the yen remains hostage to monetary policy, and any rate fluctuations will have a direct impact on global markets, including the cryptocurrency one.