Investors and hedge funds around the world are increasingly turning to the Swiss franc instead of the yen as the main funding currency for carry trades, amid rising yen volatility from intervention risk and signals of Bank of Japan rate hikes. The Swiss franc has the lowest borrowing cost near zero percent from the Swiss National Bank, and its volatility range is more predictable because the central bank stands ready to intervene to limit appreciation. Actual investment data over the past month shows that borrowing Swiss francs to invest in Mexican pesos returned nearly four percent, while using the yen returned only one point three percent. Hedge funds have increased net short positions in the Swiss franc to almost the highest level in two months, while gradually reducing short positions in the yen. JPMorgan says the market is looking for alternatives such as the Swiss franc, the euro, and the Taiwan dollar, while Standard Chartered confirms that inflows into Swiss franc carry trades are growing significantly. But Credit Agricole argues that over the long term the yen has not lost its position as the main funding currency, because Bank of Japan rates at one percent are still very low and Japan's fiscal burden can still pressure the yen weaker.
Credit Agricole SA
Standard Chartered PLC
JPMorgan Chase & Co