CHF/JPY: The Alternative Carry Trade Opportunity
The CHF/JPY currency pair has become increasingly interesting due to several factors. Its relative valuation is extreme, and its carry rankings are changing. Additionally, there are opposing official preferences regarding currency direction and the beginnings of a possible technical rollover.
Historically, the yen was the preferred funding currency, but now it embeds substantial risk both internally and externally. For investors seeking to run carry trades, the CHF may become an alternative funding currency. Conversely, shorting CHF/JPY can offer a running portfolio risk hedge.
The CHF/JPY has risen significantly over the past decade, especially since 2020. However, it is now showing signs of a slow rollover. The pair sits at the intersection of two valuation extremes, with the yen being exceptionally weak and the Swiss franc relatively rich. The policy asymmetry between the SNB and BoJ further complicates the situation.