RBC BlueBay Asset Management increased its long positions in the Japanese yen on Tuesday as the currency approached 160 per dollar. The firm had first entered long yen positions above 159 per dollar in April this year [1, 2].

The asset manager, which oversees $155 billion in fixed income assets, cited expectations for a Bank of Japan rate hike in June and possible currency intervention if the yen breaks the 160 level [1]. Mark Dowding, RBC BlueBay's chief investment officer for fixed income, said, "We are confident that the BOJ will now hike in June and we continue to expect intervention should that level break" [1].

Japanese authorities have already intervened in the currency markets starting April 30, continuing into early May. The interventions could have amounted to as much as 10 trillion yen (about $63 billion) in total, according to insider sources [2]. Japan’s Finance Minister Katayama Satsuki reaffirmed readiness to intervene during the recent G7 meeting [2].

Overnight index swaps currently signal about a 78% probability of a BOJ rate hike taking place in June [2]. RBC BlueBay expects the USD/JPY exchange rate to trade in a range of 152 to 160 over the next one to three months, influenced by BOJ monetary policy decisions [2].

Dowding further noted the firm would add more to its yen longs if the currency falls below 162 per dollar. However, he cautioned they might close positions if the yen weakens past 164, saying such a move would indicate that "the BOJ and Prime Minister Sanae Takaichi's policies are too dovish or the Ministry of Finance's forex interventions are ineffective" [2].

He also warned that intervention alone was unlikely to reverse the yen’s overall weakness. Dowding stated, "To see the yen move above 150, we need to see interest rate differentials narrow, which requires continued BOJ monetary policy normalization" [2].

The immediate next event market participants are watching is the expected Bank of Japan rate hike due this month, with the probability inferred from market instruments standing near 78% [2].