Swiss Franc Intervention Faces ‘Unclear’ Prospects, Mizuho Corporate Says

It’s “unclear” whether the Swiss central bank’s move to cap the franc’s gains will be successful, and it’s too early for Japan to follow suit, according to Mizuho Corporate Bank Ltd.

The Swiss National Bank yesterday imposed a ceiling on the franc of 1.20 versus the euro, the first such move in more than three decades, and pledged to defend the target with the “utmost determination.”

“The SNB’s fight has just begun,” said Daisuke Karakama, a market economist in Tokyo at the unit of Japan’s third-largest financial group by market value. “It’s unclear whether the bank will be able to keep it up and end up being successful. Will the SNB continue doing it no matter how much they incur in currency losses? It will be a test of perseverance.”

It’s too early to expect that Japan will follow Switzerland before the success of the Swiss central bank’s move has been demonstrated, Karakama said.

The franc traded at 1.2041 per euro as of 2:08 p.m. in Tokyo from 1.2069 yesterday in New York.

The only option now remaining for the SNB to take is capital control, Karakama said. “In a situation like this, capital control would be possible,” he said.

It’s unlikely that Switzerland will abandon its own currency and join the euro just to eliminate deflation risks in the near term, he said.

To contact the reporters on this story: Hiroko Komiya in Tokyo at hkomiya1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net