Swiss Franc Set for Weakening as Yen Intervention Rocks Markets

The recent intervention in the yen market by Washington and Tokyo to prop up the Japanese currency may have an unexpected consequence - a weaker Swiss franc. Analysts say this could bring relief to companies and policymakers in Switzerland, who have struggled with the strength of their local currency for years.

The Swiss franc has been 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 has made exports more expensive and squeezed economic growth.

With the yen no longer a reliable funding currency for carry trades, investors are starting to rotate their positions towards the Swiss franc. BofA's head of global G10 FX strategy Adarsh Sinha said that 'not only are Swiss rates lower than the Japanese yen, but (franc) volatility is lower as well.'

Rabobank has revised its 9- to 12-month target for euro/Swiss franc to 0.95 from 0.94, reflecting expectations that the franc will weaken further.