Investors pivot to Swiss franc as yen intervention risks mount

Carry trades, which involve borrowing in low-yielding currencies to invest in higher-yielding assets, are currently enjoying their strongest performance in years due to low FX volatility. However, the Japanese yen, traditionally the go-to funding currency, has become increasingly unpredictable. Traders are wary of further intervention by Tokyo and Washington, prompting a shift toward the franc, which currently offers even lower borrowing costs than the yen.

At 0% interest, the Swiss franc is an attractive alternative for those looking to avoid the erratic swings of the Japanese market. Adarsh Sinha, head of global G10 FX strategy at BofA, noted that the franc provides both lower rates and lower volatility. While the yen remains a major global currency, analysts at firms like Rabobank and Neuberger Berman suggest the rotation is already underway. ING’s global head of markets, Chris Turner, highlighted the symmetry of the current situation: Japan is actively seeking a stronger yen, while the Swiss National Bank remains eager to see a weaker franc to support its domestic economy.