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. To measure the influence of the greenback, traders can combine the charts of USD/JPY and USD/CHF. The result gives an approximation of the CHF/JPY chart.

The USD influences both the CHF and JPY, and for this reason traders tend to closely watch and monitor macroeconomic data out of the US including discount rate, unemployment rate, the GDP level and jobs growth.

Changes in the USD could impact the Swiss franc or Japanese yen at a different pace, so traders should pay close attention to market moves and their effect on the pair. 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. One of the main reserve currencies, the yen is a popular pair and a safe-haven currency alongside the Swiss franc, which is also considered a reliable currency due to Switzerland’s strong economy and political stability.

Cross-currency pairs

A cross currency pair is a pair that doesn’t involve the US dollar. A cross currency pair then includes two currencies that are traded in 外匯 with the most popular pairs involving the euro or the Japanese yen.

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

Switzerland is a small open economy and is mainly influenced by global economic fluctuations. As a safe-haven currency, the Swiss franc tends to appreciate when global demand declines, which tends to be followed by a substantial drop in inflation.

The Swiss National Bank (SNB) follows a monetary policy approach that is flexible, given the influence of global developments on Swiss inflation. 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, but the bank has also used more controversial ways to manage deflation and fight high inflation, through foreign exchange interventions.

Overall, the Swiss economy has fared extremely well in the past couple of decades, partly due to the actions taken by the SNB which continues its work to promote price stability.

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

The Bank of Japan (BoJ) is responsible for setting monetary policy and issuing banknotes. It also carries out currency and monetary control. Its goal is to keep prices stable at the bank’s 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 of Japan further loosened its monetary policy. It introduced negative interest rates for the first time. It also began directly controlling the yield on its 10-year government bonds.

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 tends to increase inflationary pressures. This had also led the Bank of Japan (BoJ) to raise interest 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 for CHF/JPY

• 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 in the markets.
This came after the Swiss National Bank (SNB) cut its interest rate by 25 basis points. The rate moved from 0.50% down to 0.25%.

Despite the rate cut, the SNB did not clarify its future policy direction. It referred to the need for lower borrowing costs to align monetary conditions with reduced inflationary pressures.

According to analysts at Danske Bank, the SNB is expected to make a final 25 basis point cut. They explained that the SNB maintained its previous guidance on adjusting monetary policy when needed. This is to ensure inflation stays 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 will cut the policy rate by 25 basis points at the next meeting in June.
This move would bring the policy rate down to 0%.They also highlighted that they are positive about the CHF outlook.

Rising geopolitical risks have helped support the Swiss franc. Stable Swiss inflation and uncertainty about US economic policy have also played a role. These factors are expected to limit any downside risks for the currency.

Latest news on CHF/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 strategy!

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