RBC BlueBay Asset Management has taken a long position in the Japanese yen, anticipating potential strength from a Bank of Japan rate hike and the upcoming Liberal Democratic Party leadership contest, according to a report by Bloomberg.

CIO Mark Dowding said the firm initiated dollar-yen shorts just below 150, viewing the yen as more attractive if Agriculture Minister Shinjiro Koizumi wins the LDP race on 4 October. Koizumi is seen as more supportive of rate hikes than rival Sanae Takaichi, who favours looser monetary and fiscal policy.

BlueBay expects dollar-yen to trade toward 140 in the near term, with a medium-term fair value around 135. The firm has also gone long 30-year Japanese government bonds against 10-year securities, positioning for potential policy normalization by the BOJ.

The yen trade contrasts with broader hedge fund sentiment, where short positions against the currency have increased in recent weeks. Overnight index swaps currently price in roughly a 60% chance of a BOJ hike by year-end.