The market is pricing in an 84% probability of a rate hike by the Bank of Japan in September.
Participants in the decentralized prediction market Polymarket have radically revised their expectations regarding Japan's monetary policy. In just two weeks, the probability of a rate hike by the Bank of Japan at the September meeting has surged from 22% to 84%. This signals a sharp shift in market sentiment, which is now betting on decisive action from the regulator.
The intervention effect weakens, and the yen comes under pressure again
The reason for this reversal was the rapid dissipation of the effect of the currency intervention by Japanese authorities. The yen has lost a significant portion of its recent gains and is posting its worst weekly performance in three months. This week, the USD/JPY exchange rate fell by approximately 1%, reaching 159.43 yen per dollar. This is the worst weekly result since May.
The currency has given back about half of what it regained after the joint intervention by the Bank of Japan in late July and early August. Before these measures, the exchange rate was hovering around 164 yen per dollar. A similar picture emerged earlier: after the April intervention, the yen again approached a 40-year low in the following months.
Significantly, Tokyo's former top currency diplomat Mitsuhiro Furusawa noted the authorities' readiness to deploy currency reserves again at any moment. According to him, officials may also signal to the market a faster rate hike to support the currency. However, the market, it seems, no longer believes in the effectiveness of one-off interventions.
Traders bet on a rate hike
The link between intervention and key rate decisions explains the shift in expectations. Polymarket participants estimate the probability of a quarter-point rate hike at above 80%. OCBC strategist Sim Moh Siong believes that interventions alone will not reverse the dynamics of the Japanese currency.
"It's no surprise that the yen has given up ground again," Siong said.
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 serious 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. Market participants are now counting precisely on central bank steps, not on new currency interventions.
My analysis: the sharp jump in probability on Polymarket reflects not just speculative sentiment, but a fundamental understanding that interventions without changes in monetary policy are merely a temporary measure. The Bank of Japan has found itself in a trap: further delay in raising the rate risks triggering an even more aggressive weakening of the yen, which would accelerate cost-push inflation. The September meeting is becoming a key moment that will determine the trajectory not only of the Japanese currency, but also of global capital markets.