(Bloomberg) — RBC BlueBay Asset Management added to long yen positions this week as the currency drifted back toward 160 per dollar, viewing the level as increasingly attractive amid possible intervention and expectations of a Bank of Japan rate hike in June.
“We are confident that the BOJ will now hike in June and we continue to expect intervention should that level break,” said chief investment officer for fixed income Mark Dowding. The firm, which manages $155 billion in fixed-income assets, added to long yen positions on Tuesday after initially entering the trade above 159 per dollar in April.
Dowding said he would add positions further should the currency weaken beyond 162. However, the firm would likely exit entirely above 164, which would suggest “the BOJ 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. While the government has declined to confirm the operations, 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 this week’s 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.
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.”
Over the next one to three months, RBC BlueBay expects dollar-yen to trade in a 152-160 range. Dowding said 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.
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