A handful of large investors are still betting on further rate hikes in Japan in the coming months, even after market expectations for further tightening this year have fallen sharply.
Vanguard, the world’s No. 2 asset manager, has doubled its short position in Japanese government bonds as it continues to see the possibility of another 50 basis points of rate hikes by December. The prospect of another hike has also prompted M&G Investment Management to continue adding to its short position in JGB, while remaining overweight the yen. RBC BlueBay Asset Management continues to dump 10-year Japanese government bonds.
The positions run counter to the overnight swaps market, which is pricing in a 29% chance that the Bank of Japan will raise rates to 0.25% by the end of the year, down from around 63% at the start of the month. They also contrast with groups like AllianceBernstein, which has said the BOJ will find it difficult to raise rates further in 2024 unless the yen falls back below ¥160 to the dollar. But if the trio are right, the tighter policy could lead to more gains in the yen, along with a continued, gradual rise in JGB yields.
