Swiss Franc Gains as Yen Loses Favor in Carry Trades

The Swiss franc could be an unexpected beneficiary of recent US-Japanese intervention to prop up the yen, potentially bringing relief to companies and policymakers in Switzerland who have struggled with its strength.

The franc has remained 12% stronger against the euro than five years ago due to Switzerland's persistent current account surplus, sound public finances, low inflation, and safe-haven inflows.

This strength has made Swiss exports more expensive and squeezed economic growth, but investors are now turning their attention to the franc as a potential alternative for popular carry trades.

According to analysts and investors, there is a trend towards rotating from the yen to the Swiss franc, which would likely continue if Washington and Tokyo successfully engineer a stronger Japanese currency.

Fredrik Repton of Neuberger Berman said market participants will be thinking about rotating some funding positions, while Chris Turner of ING noted that using the franc as a funding currency instead of the yen is still in its early stages but could well take place.