Yen falls to record low against Swiss franc on policy divergence

THE yen fell to a record low against the franc amid the growing monetary policy divergence between Japan and Switzerland, with the latter’s central bank expected to raise interest rates on Thursday (Jun 22). 

The Japanese currency dropped to about 159.15 per franc, surpassing the previous low seen in 1979. The Swiss National Bank removed negative rates last year and hiked once more to 1.75 per cent as expected on Thursday, while the Bank of Japan left its ultra-loose monetary policy unchanged last week. 

“The monetary policy divergence between Japanese and European central banks is widening as the BOJ is more dovish than previously expected while European counterparts seem to raise their rates more than expected before,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp in Tokyo. “European currencies are getting stronger against the yen and it is possible this trend will further accelerate.”

Trade is also proving to be a drag for the yen, itself a traditional currency haven, with Japan posting a deficit for a 19th straight month in May. Switzerland’s trade balance is a surplus. 

BOJ governor Kazuo Ueda said on Wednesday the bank will persistently continue with monetary easing to achieve its 2 per cent price target in a sustainable and stable manner, accompanied by wage increases. 

His continued dovish tone has also weighed on the yen against other currencies, sending it to the lowest since 2008 against the euro and the weakest in more than seven months versus the US dollar. 

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Japanese officials, including Finance Minister Shunichi Suzuki, have warned they are watching currency moves closely and stand ready to act if needed, as they did late last year. Then, the yen weakening toward 146 per dollar triggered Japan’s first intervention to prop up the currency since 1998.

The weak yen “will only be turned around by either a BOJ policy shift, or a turn lower in US yields,” wrote Societe Generale strategist Kit Juckes. “Our economists expect the BOJ will act in July on YCC and our rates strategists think a turn lower in US yields is close by too, but until that happens, frustration will remain.” BLOOMBERG