The Swiss franc has overtaken the Japanese yen as the dominant funding currency for new carry trades, a shift that has drawn implicit support from the Swiss National Bank (SNB) and provided relief to Swiss exporters.
Carry trades, which involve borrowing in low-yielding currencies to invest in higher-yielding assets, have historically favored the yen due to its ultra-low interest rates and perceived stability. However, recent market dynamics have eroded the yen’s appeal, with the franc now emerging as the preferred alternative. Analysts attribute the shift to the franc’s lower volatility, stable yields, and Switzerland’s relatively robust economic fundamentals compared to Japan’s prolonged stagnation and policy constraints.
The SNB’s tolerance for a stronger franc—despite its export-sensitive economy—suggests policymakers see limited upside in countering the currency’s appreciation. The central bank has maintained a cautious stance on rate cuts, keeping its key policy rate at 1.25% since June 2025, while the Bank of Japan has struggled to normalize policy amid persistent deflationary pressures and weak growth.
For Swiss exporters, a firmer franc reduces import costs and supports margins, particularly in industries reliant on foreign inputs. The currency’s ascent also aligns with Switzerland’s status as a safe-haven destination, reinforcing its appeal in global portfolios. Meanwhile, the yen’s decline in carry trade usage reflects broader challenges in Japan’s economy, where structural issues and policy limitations have constrained its traditional role as a funding currency.
Market participants note that the franc’s newfound prominence in carry trades could persist as long as global risk sentiment remains fragile and central banks maintain divergent policy paths. The shift underscores the franc’s growing influence in global currency markets, even as the SNB treads carefully to avoid exacerbating export headwinds.
