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Traders consider Swiss franc as yen carry-trade funding shifts

Swiss rates are at zero versus about 1% in Japan, and the franc has already weakened against the euro and US dollar since its March and January highs.

Reported · Written up by our desk · Hedge Funds

Hedge fund investors are starting to look beyond the Japanese yen for funding currencies in carry trades, with the Swiss franc emerging as a potential beneficiary after recent yen support efforts, according to a Reuters report summarized by Hedgeweek.

The shift comes after rare US-Japanese efforts to support the yen raised the risk for investors betting on a weaker Japanese currency. Carry trades typically involve borrowing in a low-rate currency and investing the proceeds into higher-yielding assets, often in emerging markets.

Analysts cited by the report point to Switzerland’s interest-rate gap and the franc’s historically low volatility. Swiss rates are reportedly at zero compared with about 1% in Japan, while the yen, though unlikely to lose its role overnight due to deep liquidity, is facing greater uncertainty from intervention expectations.

The franc has already weakened, trading around 0.9385 against the euro, roughly 4% below its March peak near 0.90. Against the US dollar, it has fallen almost 7% from an 11-year high reached in January, and Rabobank raised its nine- to 12-month euro/Swiss franc forecast to 0.95 from 0.94, indicating further franc depreciation.

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