Swiss Franc Gains Traction as 'Carry Trade' Alternative to Yen
The Swiss franc is gaining popularity among investors as an alternative to the Japanese yen for 'carry trade' strategies. This strategy involves borrowing in a currency with low interest rates and investing in one with higher returns.
Switzerland's base interest rate of 0 percent makes borrowing in francs relatively cheap, while changes in Japan's monetary policy are making the yen less attractive for this purpose.
The Bank of Japan has raised interest rates, which means investors may face higher costs when repaying loans taken out in yen. This is prompting investors to seek alternatives, with the Swiss franc emerging as a strong contender.
A Bloomberg analysis found that a strategy funded with Swiss francs generated a total return of around 14 percent through 2026, while selling the yen to buy the Australian dollar resulted in a loss of 1.3 percent since July.