The Swiss franc (CHF) recently traded at 189.1 JPY, which is 2.2% above its three-month average of 185, suggesting a stable yet upward trend in its value against the Japanese yen (JPY). The CHF's recent strength can be attributed to several key factors, despite challenges facing the Swiss economy.
The Swiss National Bank (SNB) has decided to maintain its zero-interest-rate policy, buoyed by low inflation rates and a stable CHF. However, recent economic forecasts from the International Monetary Fund (IMF) indicate a downgraded growth forecast for Switzerland, now expected to expand by only 1.3% in 2025. This reduced outlook is partly due to external risks, including geopolitical tensions and trade uncertainties stemming from U.S. tariffs on Swiss exports, which were recently raised to 39%. Such tariffs have battered Switzerland's export-driven economy, increasing speculation about potential SNB intervention to weaken the CHF.
In contrast, the Japanese yen has recently come under pressure following political changes, specifically the election of Sanae Takaichi as the leader of Japan's ruling party. Her leadership has sparked expectations for increased fiscal stimulus and a more expansive monetary policy, which have already resulted in a significant decline in the yen, reaching an eight-month low against the U.S. dollar. Analysts note that Takaichi's proposed measures to address the rising cost of living may lead to further yen weakness due to a potential delay in Bank of Japan (BOJ) rate hikes.
Investor sentiment has shifted, as major banks have altered their positions on the yen, reflecting a cautious outlook amid policy uncertainties. The BOJ has indicated a reluctance to increase interest rates, with Governor Kazuo Ueda emphasizing the need to align monetary policy with the broader economic context.
With oil prices currently trading at $62.73 per barrel, 7.2% below their three-month average, changes in oil prices can also impact the yen through Japan's energy import costs. This price volatility further complicates the outlook for JPY as the country relies heavily on energy imports.
Overall, the CHF could maintain its relative strength against the JPY if the SNB acts to mitigate the effects of external economic pressures, while the ongoing uncertainties surrounding Japan's fiscal policies and potential BOJ interventions may weigh on the yen in the near term.
