RBC BlueBay Increases Yen Long Position Amid Intervention, Revises Up BOJ Rate Forecast
Yen's Bounce Triggers RBC BlueBay to Add Long Positions
RBC BlueBay Asset Management has added to its long yen positions this week as the currency drifts back toward 160 per dollar. The firm views this level as increasingly attractive due to possible intervention and expectations of a Bank of Japan rate hike in June.
The firm, which manages $155 billion in fixed-income assets, initially entered the trade above 159 per dollar in April. Mark Dowding, chief investment officer for fixed income, stated that the firm would add positions further should the currency weaken beyond 162. However, RBC BlueBay would likely exit entirely above 164, which would suggest that the Bank of Japan and Prime Minister Sanae Takaichi are running policy that is too dovish, or that the Ministry of Finance's FX intervention has been a failure.
Dowding's view highlights how investors are increasingly viewing 160 yen to a dollar as a line in the sand for Japanese authorities after repeated rounds of intervention this year. The government has declined to confirm the operations, but people familiar with the matter said they started on April 30. Analysis of the Bank of Japan's accounts suggests it continued into early May and likely totaled as much as ¥10 trillion ($63 billion).
During the Group-of-Seven meeting, Japan's Finance Minister Satsuki Katayama indicated her resolve to intervene in the foreign-exchange market if needed. US Treasury Scott Bessent said he met with BOJ Governor Kazuo Ueda and that he is confident the governor will "successfully" guide Japan's monetary policy.
| Indicator | Current Value | Next Month's Expectation |
|---|---|---|
| Rate Hike Chance | 78% | 78% |
| Dollar-Yen Range | 152-160 | 152-160 |
Overnight index swaps suggest traders are pricing an about 78% chance of a rate hike next month. Dowding cautioned that intervention alone is unlikely to reverse the yen's broader decline. "For the yen to trade toward 150 or stronger, we need to see a closing in relative interest-rate differentials," he said. "That requires the BOJ to continue to normalize policy."
RBC BlueBay expects dollar-yen to trade in a 152-160 range over the next one to three months. Dowding stated that the firm sees the lower end of that range as more likely if the BOJ delivers a rate hike in June, while a more dovish stance could push the pair back toward 160.
Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
Investor Takeaway
Investors may consider adding long yen positions as the currency is viewed as increasingly attractive amid possible intervention and expectations of a Bank of Japan rate hike in June.
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