Photographer: Tomohiro Ohsumi/Bloomberg
In Battle of Havens, Investors Bet on Yen Over Swiss FrancBy and
Investors are betting that the Japanese yen will do better this year than its haven counterpart, the Swiss franc.
With waning political risks in Europe and the Swiss National Bank reluctant to move away from its rhetoric on a “highly valued” currency, options markets favor the yen and analysts see the franc weakening. Add in speculation that the Bank of Japan will take tentative steps toward normalizing policy before the SNB, and that’s leading Investec Asset Management Limited to short the Swiss currency against the yen.
In the past week, as global stock markets have suffered a selloff, the franc has fallen 1.9 percent against the yen. Six-month and one-year risk reversal options in franc-yen have slipped to the most bearish franc sentiment since October. Investec portfolio manager Russell Silberston sees prospects of funds flowing out of Switzerland as global growth picks up.
“Our preferred way to play this is short CHF versus the JPY,” he said. “That way we neutralize a lot of the defensive characteristics of the Swissie whilst also having a solid valuation supporting the JPY.”
Correlations between U.S. stocks and the currency pair signal that during times of recent market turbulence it is the yen that is seen as a preferred haven rather than the franc. The Swiss currency’s underperformance during the recent selloff highlights this.
“Lower CHF/JPY is our high conviction medium-term view,” said Kamal Sharma, a currency strategist at Bank of America Merrill Lynch. The bank expects SNB policy to remain unchanged this year but sees the Bank of Japan recalibrating its yield-curve control target in the second half of 2018. That leads it to see the franc falling to about 114 versus the yen at the end of the year, according to calculations based on its forecasts, from 116 now.
ING Bank NV sees the pair falling even further, by 10 percent at the end of the year to 104. The consensus among analysts is for the cross to slip to 115.79 by end-2018, according to calculations based on franc and yen forecasts in a Bloomberg survey.
The yen has been boosted as “things are starting to turn the corner in the Japanese economy,” said ING currency strategist Viraj Patel. “The Swiss franc doesn’t have those dynamics. The SNB will be the last ones to even consider moving. They’re at the back of the queue when we look at a group of countries looking to normalize monetary policy.”
— With assistance by Vassilis Karamanis