Swiss franc may seize crown yen has worn for years
June 27 (Reuters) -With Switzerland's central bank easing monetary policy while Japan's tightens, the Swiss franc may seize the crown that Japan's yen has worn for years as the king of funding currencies.
Although the gap between the nations' interest rates still favours the franc, where the policy rate is 1.25% compared to 0.1% for the yen, it could soon narrow to as little as 0.50%.
For investors who are fully aware of the amount of investments that have been made by selling yen to increase their profitability, the Swiss franc may be preferred to fund future investments - which could bring an end to the long-term appreciation of Switzerland's currency.
There has already been a huge decline in Swiss sight deposits, which has been counterbalanced by the simultaneous plunge in FX reserves, but an outflow of francs resulting from the easing cycle could be significantly boosted should traders switch funding currencies.
There is huge downside potential for CHF/JPY, which has risen enormously from 62.47 to 179.06 since Japan's central bank adopted the super-easy policies that it's now changing. Big changes expected from its meeting in July could signal the end of the yen's long-term decline.
Even a minor correction of the CHF/JPY rise at 134.52 is a huge move and, given current positioning, a correction might happen quickly.
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Jeremy Boulton is a Reuters market analyst. The views expressed are his own; Editing by Kevin Liffey
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