Carry Traders Flock to Franc as Yen Volatility Surges

Carry traders are increasingly shifting their focus from the yen to the Swiss franc as a source of funding, according to recent market trends. This change is attributed to the rising volatility of the yen following intervention efforts by Japan and the US in late July.

The Swiss National Bank's readiness to limit any currency appreciation has made borrowing in the franc an attractive option for investors seeking higher carry returns. Meanwhile, interest rates near zero in Switzerland have further underpinned the appeal of the franc as a funding source.

In contrast to the yen, which still maintains its status as the world's dominant funding currency, traders are becoming more cautious about using it due to concerns over Japan's long-term fiscal outlook and the Bank of Japan's benchmark policy rate of 1%.