Hedge Funds Bet BOJ to Lift Yen, JGB Yields With Hawkish Hints

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Swaps markets show about a 55% chance of a quarter-point hike in April. July is the earliest that such an increase is fully priced in. 

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What Bloomberg Strategists Say… 

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“A hawkish stance might help the currency, but then that could also spur higher JGB yields across the curve.”

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David Savage, Markets Live strategist

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Simplex Asset Management Co. sees potential for JGB yields to edge higher for now as price pressures persist. But with 10-year yields near the highest levels since the 1990s, the securities are enticing enough to buy — especially if fears of an economic downturn suddenly trigger a rush to bonds. 

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“In the short term, cost-push inflation risks outweigh risk-aversion factors, so yields may still have room to rise,” said fund manager Toshinobu Chiba. “However, markets will gradually start to factor in the risk of a global economic slowdown,” said Chiba, adding that he bought 10-year JGB futures and five-year paper before the policy meeting. 

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Equities Bets

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Meanwhile, speculative stock traders are also on the lookout for cues from Ueda. 

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Earlier this month, the Nikkei 225 stock index plunged the most since April’s tariff rout on concerns around climbing oil prices and mounting Middle East tensions. The gauge’s one-year implied volatility briefly soared to its highest level since the pandemic, underscoring investor expectations for bigger market swings. 

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Go Tanuma, from hedge fund Go Fund Co. in Tokyo, has taken profits on positions in Japanese equities. Not so at Pictet Asset Management, where Jon Withaar is still bullish on Japanese banks heading into the meeting. 

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“That position is about playing the longer game,” said Singapore-based Withaar. At a broader level, “there is wage growth, good inflation, strong earnings, and a global flow reallocation into the market out of the US and Europe” boosting Japanese stocks. 

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Some are also penciling in risks that Ueda doesn’t give any firm guidance at all, as he balances managing inflation risks and growth. 

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“I think Ueda is in a bit of a bind,” said Zuhair Khan, who helps run a UBP Investments market neutral fund. “Probably he needs to be unclear in his comments, leaving people guessing about what he meant.” 

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For others, taking Japan risk off entirely is their bet into and immediately out of the BOJ rates decision meet. That’s the case for Wilson Asset Management’s Matthew Haupt, who pegs the unfolding Iran conflict as a bigger driver for markets — irrespective of what signals come out of Ueda’s briefing on Thursday. 

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“You can get the BOJ right and still get the trade wrong while the Middle East is on,” said Haupt, a hedge fund manager at the Sydney-based firm. “I will trade Nikkei futures off the Middle East and oil moves rather than BOJ at this stage.”

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—With assistance from Mia Glass and Takahiko Hyuga.

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