Yen's Carry-Trade Crown Slipping: Franc and Krona Emerge as Contenders
The decades-long reign of the Japanese yen as the go-to funding currency for global carry trades is coming to an end. The Bank of Japan's rate-hike trajectory and coordinated US-Japan intervention have signaled a preference for a stronger yen, prompting investors to seek alternative currencies.
Switzerland's Swiss franc and Sweden's Swedish krona have emerged as potential replacements, with the former offering low interest rates and high market liquidity. According to Van Luu, head of global fixed income and currency solutions at Russell Investments, 'investors still want to be in carry trades, but the question of what to fund them with has become the key issue.'
The Swiss franc's appeal lies in its zero policy rate through late 2027 and willingness to see the currency weaken to support exports. However, experts caution that each alternative carries its own risks, including exchange-rate volatility and potential losses.