BlueBay says 'very risky' to trade chatter on Yen intervention

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.”