Hedge funds including Fivestar Asset Management are adjusting positions ahead of the Bank of Japan’s upcoming policy meeting, anticipating that Governor Kazuo Ueda could signal a hawkish stance amid inflationary pressures arising from the Iran conflict, according to a report by Bloomberg.
While interest rates are widely expected to remain unchanged, investors are watching Ueda’s press conference for guidance that could move markets. Hedge funds see any hawkish hints as a trigger for yen strength and higher Japanese government bond (JGB) yields.
Tokyo-based Fivestar has sold 10-year JGB futures while hedging with 30-year positions, citing Brent crude prices above $100 per barrel. Blue Edge Advisors meanwhile, has paused bearish yen bets, seeking opportunities to buy after tensions in the Strait of Hormuz escalated. In addition, a hedge fund strategy at Pictet Asset Management has maintained long positions in Japanese banks.
Investors are debating whether the BOJ will prioritise containing inflation or supporting growth. A hawkish message could lift the yen and push yields higher, while a dovish stance may weaken the currency but cap bond yields, adding volatility risk. The yen recently touched 159.75 per dollar, near its weakest since mid-2024.
Finance Minister Satsuki Katayama reiterated authorities could intervene to curb excessive currency moves, heightening market focus on BOJ guidance.
Market pricing shows roughly a 55% probability of a quarter-point rate hike in April, with July as the earliest fully priced-in increase.
Fund managers are also watching for opportunities in equities. The Nikkei 225 recently experienced its steepest drop since last April, and implied volatility reached pandemic-era highs. Some, like Pictet’s Jon Withaar, remain bullish on Japanese banks, citing wage growth, earnings strength, and international capital flows. Others, such as Matthew Haupt of Wilson Asset Management, are focused on trading Japanese markets based on oil and Middle East developments rather than BOJ signals.
Traders describe Ueda’s messaging as a delicate balancing act, managing inflation risk while avoiding signals that could disrupt economic growth expectations.
