(Bloomberg) -- RBC BlueBay Asset Management isn’t taking any chances on the Japanese yen amid its wild gyrations and talk of currency intervention. 

The firm, which oversees more than $114 billion in fixed-income assets, closed a bet on yen strength on Friday after the Bank of Japan held interest rates steady, according to Chief Investment Officer Mark Dowding. After first sliding to a fresh 34-year low, the yen jumped as much 2.5% on Monday — a move some traders attributed to an intervention by the Japanese authorities. 

BlueBay has long argued that Japanese bonds will fall as the central bank tightens policy, and that the subsequent rise in rates will boost the yen’s appeal. But for Dowding — who remains short the nation’s government debt —the possible payoff from any action by Japan to strengthen its currency wasn’t worth the cost.

“You can play the intervention trade, but you’re in very risky territory,” he said in an interview from his London office on Monday. “When you’ve got the interest rate differential running against you as it currently is, it means that sitting long of yen is an expensive thing to do.”

BlueBay structured its latest long yen trade against the euro because of the smaller interest-rate differential between Europe and Japan compared to the US, Dowding said. The company would prefer to take long positions in the immediate run-up to a BOJ decision before closing them again if there is no hawkish shift, he added. 

The BOJ’s decision to keep policy unchanged on Friday sparked another bout of yen weakness. Speculation had been rife that the central bank might choose to stem the currency’s depreciation by signaling that years of exceptionally loose monetary policy would end more speedily, narrowing the wide interest-rate differential with the US. The BOJ’s key rate stands at 0.1% versus the Federal Reserve’s target range between 5.25% and 5.5%.

“There will certainly be a moment where you want to own the yen, but you’re picking the moment and you need to pick the moment when you get that policy delivery,” Dowding said.

BlueBay was among those to profit from betting against Japanese bonds in 2022, and has now maxed out its short allocation among relevant funds, Dowding said. He sees 10-year Japanese bond yields heading toward 2% from around 0.88% currently.

Friday’s BOJ decision “was an error in as much as the BOJ should have gone further,” Dowding said. “It’s almost like the Japanese authorities have been hoping and praying for a US slowdown and for US rate cuts because effectively it alleviates the pressure for them if that rate differential is closing thanks to US policy action rather than Japanese policy action.”

©2024 Bloomberg L.P.