RBC BlueBay Asset Management jettisoned its long-standing bet against Japanese bonds, wagering they are poised to gain as the nation’s central bank holds back on further interest-rate hikes.

The firm has shifted to an overweight position in 30-year bonds over the past week as the U.S. trade war darkens the economic outlook, abandoning its bet that they had further to fall. The move came as the yield surged, pushing it to a more than two-decade high earlier this week.

"We have thought that over time, Japanese cash interest rates go up over time,” Mark Dowding chief investment officer at BlueBay, said in an interview. "However, with growth slowing due to tariffs, we think that the BOJ may not be in a hurry to hike rates in the next few months.”

The financial market tumult unleashed by U.S. President Donald Trump’s tariff announcement this month battered Japanese bonds, delivering gains to speculators who had been betting they’d decline as the central bank edged rates higher.

But the jump, which by Tuesday drove the 30-year rate near 2.9%, reset the market to "attractive levels,” Dowding said. The firm also added to a curve-flattening position it opened a few weeks ago that will pay off if 30-year Japanese debt outperforms 10-year securities, narrowing the yield gap between the two. The 10-year yield is currently about 1.3%, about half what it is on 30-year bonds.

"Over the past week, we have seen a big dislocation in the valuation of 30-year JGBs,” Dowding said. "Japanese 30-years are the most attractive long position we would identify in developed market rates curves at the current time.”

BOJ Gov. Kazuo Ueda has signaled that the central bank will hold off from considering interest-rate hikes for now, given the uncertainty sown by the U.S.’s tariffs. Market expectations for further hikes from the current 0.5% rate have been dialed back as a result, with futures traders pricing in a roughly 50% of a another quarter-percentage-point hike by the end of the year.

Dowding expects the 30-year yield to continue to retreat in the coming weeks, anticipating that Japanese investors will buy more longer-dated bonds after Japan’s Golden Week holidays in early May.

He still expects the BOJ to raise rates to 1% by the end of March 2026 — up from 0.50% currently — and to 1.5% at the end of March 2027, having recently downgraded a more hawkish call from the start of the year. But given the risk that a hit to Japan’s export sector from tariffs could weigh on the overall economy, he acknowledged his call "feels a long way off.”

BlueBay remains optimistic on the yen, which has benefitted from haven flows, and is keeping a long position in the Japanese currency, targeting a rise to ¥135 versus the dollar this year, from around ¥142 currently.