Swiss Franc Drops Versus Dollar, Euro After Japan Intervenes in Yen Market

The Swiss franc fell as Japan intervened for the first time since 2004 to weaken the yen, spurring speculation the European nation’s central bank may resume sales of its currency to curb its strength.

The franc depreciated against all but the yen among its 16 most-traded peers as Japan’s Finance Minister Yoshihiko Noda said the nation intervened unilaterally. Estimates for the Bank of Japan’s intervention range from $1.2 billion, cited by the Nikkei newspaper, to $20 billion from BNP Paribas SA. The Swiss currency snapped a two-day gain versus the dollar after it strengthened to parity yesterday for the first time since December.

“Following the Japanese interventions overnight, we are concerned that the Swiss National Bank might also view the trade-weighted level of the Swiss franc as being too strong,” Morgan Stanley analysts led by Stephen Hull in London said in a report today. The bank ended a recommendation to sell the euro against the franc, citing the possibility of SNB sales. “While the fundamentals in Switzerland are still very good, we think that the risk-reward has deteriorated.”

The franc dropped 0.7 percent against the dollar to 1.0029 at 4:50 p.m. in London, after yesterday strengthening to 99.33 centimes. It weakened 0.7 percent to 1.3045 per euro after earlier slipping as much as 0.9 percent, the biggest decline this week.

The SNB began intervening in March 2009, selling francs to halt its gains against the euro, ward off deflation and bolster exports, which account for more than half of gross domestic product.

SNB Intervention

The Zurich-based central bank signaled on June 17 that it would end the policy, saying risks of deflation, or a general drop in consumer prices, had “largely disappeared.” SNB spokesman Nicolas Haymoz declined to comment today on the Japanese intervention.

“The SNB intervention’s net result was not a particularly great one,” said Roberto Mialich, a senior currency strategist at UniCredit SpA in Milan. “They tried to stem the Swiss franc’s strength, but the result was quite minimal. New lows have since been seen on the euro-Swiss.”

Investors traditionally buy the franc during times of financial and economic turmoil because of the perceived stability of Switzerland’s economy, as its trade surplus frees the nation from dependence on overseas capital.

The franc appreciated against the euro to a record 1.2766 on Sept. 8. It climbed 4.5 percent this year against a basket of currencies, according to Bloomberg Correlation-Weighted Currency Indexes.

Bank of Japan Governor Masaaki Shirakawa said today in a statement he hopes currency intervention will stabilize the foreign exchange market. Board member Tadao Noda said the central bank must take swift, decisive policy action should downside risks for the economy materialize.

“The weakness that we’re seeing in the Swiss franc is most likely a reflection of some of the movement that we’ve seen in the yen,” said Lauren Rosborough, a senior currency strategist at Westpac Banking Corp. in London. “At the moment it seems to be a blip, a reaction to the news that we’ve seen from Asia overnight. I would be surprised if we see the dollar-Swiss weaken substantially in the short term.”

To contact the reporter on this story: Stephen Morris in London at smorris39@bloomberg.net.

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