Swiss Franc vs Japanese Yen (CHF/JPY): All you Need to Know

CHF/JPY is a cross rate of the Swiss franc to the Japanese yen. The pair is significantly impacted by the US dollar. This means its movement is closely tied to shifts in the greenback. To measure the influence of the greenback, you can combine the charts of USD/JPY and USD/CHF. This method offers a useful way to observe indirect effects. The result will be an approximation of a chart of CHF/JPY. This helps traders better understand the cross pair’s behavior.

The USD influences both the CHF and the JPY. This makes it a key factor in the movement of the CHF/JPY pair. For this reason, traders closely watch macroeconomic data from the US. This includes the discount rate, unemployment rate, GDP level, and jobs growth.

Changes in the USD could impact the Swiss franc or Japanese yen at a different pace. This makes the CHF/JPY pair particularly sensitive to shifts in the dollar. Traders should pay close attention to market moves. Understanding their effect on the pair is essential for timely decision-making.

Overall, the pair is easy to forecast and is a good fit for beginner traders.

Its movement tends to be preceded by a more dynamic pair the EUR/JPY. By knowing this useful information, more advanced traders organise their trades accordingly.

The yen is one of the main reserve currencies and a popular trading pair. It is also known as a safe-haven currency. The Swiss franc shares this status, largely due to Switzerland’s strong economy and political stability. Both currencies are considered reliable in times of market uncertainty.

CHF/JPY Cross-currency pairs

A cross currency pair is a pair that doesn’t involve the US dollar. A cross currency pair includes two currencies traded in forex market that do not involve the US dollar. The most popular cross pairs often include the euro or the Japanese yen.These combinations are widely traded due to their global economic influence.

Switzerland, Swiss National Bank (SNB) and the Swiss Franc (CHF)

Switzerland has a small, open economy that global economic fluctuations mainly influence. The Swiss franc, seen as a safe-haven currency, tends to appreciate when global demand declines. This appreciation often leads to a substantial drop in inflation.

The Swiss National Bank (SNB) follows a flexible monetary policy approach. This flexibility is necessary due to the strong influence of global developments on Swiss inflation. It allows the SNB to adjust policy in response to external economic shifts.

The central bank defines price stability as any inflation rate between 0% and 2%, which wants to keep within that range over the medium term. While there have been cases when inflation was briefly outside the price stability range, it has always returned within that range.

The SNB’s main tool is the SNB policy rate.

However, the bank has also used more controversial methods to manage deflation and combat high inflation. One of these methods includes foreign exchange interventions.

Overall, the Swiss economy has fared extremely well over the past couple of decades. This success is partly due to the actions taken by the SNB. The bank continues its work to promote long-term price stability.

Japan’s economy, Bank of Japan (BoJ) and Japanese Yen (JPY)

The Bank of Japan (BoJ) sets monetary policy, issues banknotes and carries out currency and monetary control to ensure that prices remain stable at the bank’s set inflation target of 2%.

In an attempt to boost the economy and push inflation higher, the Bank of Japan initiated its ultra-loose monetary policy in 2013. Based on Quantitative and Qualitative Easing (QQE), its policy consists of printing notes to buy assets in order to provide liquidity.

In 2016, the bank further loosened policy by introducing negative interest rates for the first time and then directly controlling the yield of its 10-year government bonds. These measures significantly affect currency pairs like CHF/JPY, as they impact the relative strength of the yen against other major currencies pairs.

In a surprise move in March 2024, the BoJ increased interest rates, and abandoned its year-long ultra-loose monetary policy stance.

The BoJ’s divergence from other major central banks tended to depreciate the yen. While the bank continued its ultra-loose monetary policy, other banks increased interest rates sharply to fight high levels of inflation.

The BoJ’s policy increased the differential with other currencies and depreciated the yen. This was finally changed when the BoJ decided to raise rates in 2024 and abandon its ultra-loose policy stance.

As the yen weakened and global energy prices rose, Japanese inflation also increased and surpassed the central bank’s 2% target. The prospect of rising wages in Japan, which tends to increase inflationary pressures, had also led the BoJ to raise rates.  

Key drivers of the CHF/JPY

• Central bank decisions and policies

Interest rate decisions by the SNB and BoJ

Quantitative easing and currency interventions

• Market sentiment and risk appetite
• Impact of global risk aversion and carry trades

Economic data to watch

• GDP growth, inflation rates, and employment data
• Trade balances and economic outlooks for both Switzerland and Japan

Latest on the CHF

On 21 March, the Swiss Franc (CHF) struggled after the Swiss National Bank (SNB) cut its interest rate by 25 basis points (bps) to 0.25% from 0.50%.

Despite the rate cut, the SNB didn’t clarify its future policy direction, referring to the necessity of lower borrowing costs to align monetary conditions with reduced inflationary pressures.

According to analysts at Danske Bank, the SNB is anticipated to make a final 25bp cut at the next meeting in June. They explained that the SNB kept to its previous guidance regarding adjusting its monetary policy if necessary to keep inflation within the range consistent with price stability over the medium term.

Noted that the SNB indicated that risks are tilted to the downside for inflation as well as the growth outlook. They anticipate the bank to cut  the policy rate by 25bp at the next meeting in June, which would bring the policy rate to 0%. Also highlighted that they are positive about the CHF outlook.

The rising geopolitical risks, stable Swiss inflation, and uncertainty regarding US economic policy have helped to support the Swiss franc and are anticipated to limit any downside risks.

Latest news on JPY

The latest preliminary results from Japan’s annual spring labour negotiations revealed that businesses agreed to union demands for strong wage growth for the third year in a row, something that will stimulate consumer spending and increase inflationary pressures. With  inflation in Japan remaining above the 2% target, the BoJ has plenty of room to increase interest rates further. This favours the JPY bulls.

BBH analysts noted that Japan’s February CPI was mixed and doesn’t tilt BoJ rate expectations. Headline and Core excluding food CPI slowed less than expected to 3.7% y/y (consensus: 3.5%, prior: 4.0%) and 3.0% (consensus: 2.9%, prior: 3.2%), respectively. Core excluding fresh food and energy met expectations and rose to an 11-month high at 2.6% y/y vs. 2.5% in January. The swaps market anticipates the BoJ’s terminal rate to be between 1.00% to 1.25% over the next two years with the next full 25bps hike in September.

Because of the BoJ’s low tolerance for a weak yen, the risks for the JPY are limited, the analysts argued.

Trading the CHF/JPY?

If you are trading this cross currency pair, keep your eye on the latest financial data, as well as key decisions from the countries’ respective central banks. Like with trading any other currency pair, understanding the market dynamics and being able to speculate confidently on market moves relies heavily on your own market research and analysis. Head over to our website for the latest market insights to sharpen your trading edge!

Disclaimer: This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.