What is the right course of action now?

Your answer is correct because when a police officer is directing traffic, their signals always take priority over traffic lights and signs. In this situation, the police officer is signaling for you to proceed carefully through the junction. You do not have to wait outside the junction or give way to the blue vehicle, as the officer's instruction overrides the yield sign and traffic light. Just proceed with caution as the officer directs. Remember, always follow police officers' signals at intersections rather than traffic signals, as they are managing traffic flow in real-time.