(Bloomberg) -- Top money managers are doubling down on convictions the Bank of Japan is well on the road to exiting the world’s boldest experiment with ultra-loose monetary policy.

Pacific Investment Management Co. and UBS Global Wealth Management favor a stronger yen on expectations the central bank may relinquish its grip on bond yields sooner rather than later as inflation stays high. RBC BlueBay Asset Management is maxing out its short bets on Japan government bonds, while Schroders Plc is ramping up bearish JGB futures positions, wagering the BOJ will have little choice but to join global peers in tightening policy. 

“In our view, this is de-facto exit from the yield-curve control, or at least a major step towards that,” Tomoya Masanao, Pimco’s co-head of Japan and co-head of Asia-Pacific portfolio management, said in e-mailed comments. There’s “room for nominal yields to go higher,” he said.

The bets come after the BOJ shocked markets on Friday with its decision to allow Japan’s tightly controlled 10-year bond yields to swing above its previous 0.5% ceiling. While the move is viewed by many as a path for a future exit from its super-easy policy, nothing is certain and the central bank surprised traders again Monday with an unscheduled bond-purchase operation that pushed yields below 0.6%, well short of its new tolerance band that stretches to 1%.

Yet waiting for certainty is also dangerous for asset managers because trillions of dollars are likely to sucked out of global markets when prospects of higher rates entice Japan funds back home. It’s a risk that has been on the minds of everyone from money managers at BlackRock Inc. to policymakers at the European Central Bank.

What Bloomberg Economics Says...

“The move might tarnish Ueda’s reputation as a clear communicator and undermine his messaging power in the future. This is because after consistently sending dovish signals, his latest actions may now be perceived as unpredictable and even hawkish.”

— Taro Kimura, economist

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Kellie Wood of Schroders is among those shifting their bearish Japan bond futures positions into higher gear. 

“We added to this position after the YCC announcement,” said Wood, a money manager in Sydney. “We still see room for further yield increases and a steepening of the JGB curve.”

Yen Bets

Buying the yen has also been a top strategy favored by investors from Singapore to London. 

By far the worst-performing Group-of-10 currency this year, the yen has fallen more than 7% against the greenback as a vast majority of Japan’s peers raised interest rates to combat heated prices. Strategists see the yen strengthening to about 134 on average by the end of the year, a Bloomberg survey shows.

The currency traded 0.6% lower against the dollar at 142.07 at 4:13 p.m. in Tokyo. 

Read More: A $3 Trillion Threat to Global Financial Markets Looms in Japan 

Adrian Zuercher is among those who reckon Japan’s shifting policy narrative is providing ripe opportunities to bet on a stronger currency. 

“The Japanese yen is a fantastic trade,” the head of global asset allocation at UBS Global Wealth Management’s Chief Investment Office said on Bloomberg Television. “It’s a long game — we do think it’s the best trade to play Japan currently,” he said, adding that the currency’s fair value is around 124 over the next year.

While buying the yen and shorting Japan bonds are popular right now, investors are united in noting that volatility is likely to rise as participants continue digesting BOJ Governor Kazuo Ueda’s messaging. The verdict: virtually every asset in Japan and even those halfway across the world in Denmark will at some point feel the impact of the BOJ’s changing policy.

“US, Eurozone, UK government bond curves may face upward pressure on long-term yields,” said Gregor Hirt, global chief investment officer multi-asset at Allianz Global Investors. “Those markets with significant holdings by Japanese investors, not least US and Eurozone — in particular France — government bonds might see a change in flow patterns.”

Calvin Yeoh agrees volatility is likely to rise after Ueda’s messaging on Friday caught many by surprise, spurring a scramble to game plan how the BOJ’s policy would affect markets. 

“We feel the market is potentially underappreciating the Friday events,” said Yeoh, a portfolio manager at hedge fund Blue Edge Advisors Pte, who is now seeking to build long yen positions.  

--With assistance from Wenjin Lv and Yumi Teso.

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